SCMPr
n practice n trends n knowledge n white paper n human resource
Supply Chain Management Professional
Warehousing:
Pharma Supply Chain Summit 2013
the
Unlocking Potential Higher Growth
for
Heart of the Supply Chain
Vol. 1—No.4 `150
May 2013
14th June 2013, Mumbai
The Indian Pharma industry today is in the midst of unprecedented growth with companies faced with multiple options varying from going for new molecule development, partnering with innovators for marketing rights to capturing new markets with their own, and existing formulations.
DATE
14TH JUNE 2013 TIMING
This scenario brings a new and enhanced focus on the Supply Chain – forcing to explore and deliver consistent and never – before efficiencies.
9:30 am to 5:00 pm VENUE
T H E LA L I T
Pharma Supply Chain Summit 2013 brings together users and service providers to discuss and deliberate the challenges and opportunities
MUMBAI
Engage and get exposure to the strategies adapted by supply chain professional and industry experts
Summit Focus
Strategies for Optimization Pharmaceutical Supply Chain
Supply Chain Visibility
Managing Temperature Controlled Supply Chain Organised By:
Associate Partner:
Drivers in the
Strategic and Design Issues in Pharma Supply Chain
Associate Sponsor:
Technology & Skill Set
Knowledge Partner:
Media Partner:
FOR DELEGATE REGISTRATION PLEASE WRITE TO: RASHID.IQBAL@SCMP.IN OR CALL US ON 022- 60020121/ 122
A H I G H N E T W O R K I N G O P P O RT U N I TY TO I N T E RA CT W I T H T H E D E C I S I O N M A K E R S
In This Issue guru speaK
column
Arif A. Siddiqui: For Competitive Warehouse
Anil Sathe: Challenges in Supply Chain Today
Page..11
Page...38
Cover _May13.indd 2
LSP FOCUS Interview: Milind Sahane, Executive Director & CEO , DIESL Page...42
6/18/2013 12:57:37 PM
Presents
Pharma Consolidation Centre (PCC) MUMBAI 15o – 25o C Temp – con, FDA approved Facility
250 Pallet Positions, 3000 Sq Ft dedicated Pharma Facility
Custom Bonded Facility, GDP Complied on MHRA and US FDA norms
Last Mile deliveries in Europe thru Temp-con Facilities at Belgium, Italy and Switzerland
Economical Solution to Expensive Air Freight, Partially utilised Container
FOR MORE INFORMATION, PLEASE CONTACT: Caroline Gonsalves Shikha Sharma Zeenath D’Souza
cgonsalves@agilitylogistics.com ssharma@agilitylogistics.com zdsouza@agilitylogistics.com
Mob: +91 7498919541 Mob:+ 91 9320835899 Mob : +91 9324974305
Direct no : 022 30904217 Direct no : 022 30904397 Direct no : 022 30904232
editorial
The sign of the TimesInnovate or Perish
T Girish V S Executive Editor
he economy looks set for a rough patch. The international rating agencies do not buy the India story. And the government has a problem with that. A government that tinkers with the periphery, which tinkers with the operational issues and ignores the structural issues that slow us down. No sir, they do not have any time for that. Probably, they take comfort that in spite of a good show by the economy during the NDA government, they were booted out. And what is the lesson for us in the supply chain industry? Clearly, these are tough times for us. We need to tighten our belts. We need to innovate. The only way we will be able to survive is by innovating–in services, in processes, in routes, in choices. Let us don our thinking caps. We would like to hear from you as to how you plan to survive. Coming to this issue of SCM Pro–yet again we have assembled a wide spectrum of subjects for you. For our cover story we decided to look at Warehouses–one of the least developed areas of our supply chain. An area that does not even have an industry status–whose income is reckoned as income from house property! And to think the dreams of a modern India trying to bring in an efficient, multi layered, intelligent supply chain rests on an ignored segment–our warehouses. And instead of looking at the routine picks and pallets, we look at a few fundamental issues. Mr. Arif Siddiqui arguably one of the most accomplished warehouse specialists sets the tone by focusing our attention on the important issues. We follow up with a series of articles that go behind the warehouse and look at some interesting issues–like the three SCM trends that will rock warehousing, or the application of the Theory of Constrains in warehousing, or a look at e-commerce and Amazons warehouse. To add a different flavor, we bring you an interaction with the CEO of DIESL Mr. Milind Shahane, the usual column from Daryl Judd on HR issues, an interesting insight into the failure of an interesting experiment in Kutch from Dr. Rakesh Singh. We invite you to write in as to what you would like us to cover–we love to hear from you. Happy Reading
Executive Editor
SCMPr
May 2013
3
Contents May 2013
06 Insight >> Warehousing goals need to closely align with corporate objectives for larger gains.
09 benchmark >> Dr. Rakesh Singh continues with his analysis on failure of some of the Interesting experiments.
11 guru speak >> Arif A. Siddiqui talks about the challenges facing warehousing Sector in India and suggest a way forward for the industry to become more competitive.
35 Academic Advocacy >> A research paper on collaborative supply chain to improve sustainability and reduce transportation cost.
4 SCMPr
May 2013
38 column >> Anil Sathe discusses the significant challenges facing supply chain management.
14 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
Lead Story on Warehousing Sector in India, trends, business sustainability, E-Commerce and application of concepts for enterprise and service provider to ponder.
42 LSP Focus >> Milind Sahane, Executive Director and CEO OF DIESL on potential of logistics sector in India.
46 HR >> Darryl Judd writes the importance of training and development for supply chain Industry.
Rashid Iqbal-Director rashid.iqbal@scmp.in 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
May 2013
5
insight
Do Your Warehouse Goals Support Business Strategy? In most cases, the answer is no. Warehousing goals need to closely align with corporate objectives if the business is to succeed on revenues, margins, and profit performance.
I
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.
6 SCMPr
May 2013
n my column, “A Tribute to the Ever-Evolving Warehouse” (SCMR,March/April 2013), chronicled the evolution of warehouses as they moved from traditional stocking warehouses, to distribution centers (DCs), and then to full-service fulfillments centers. The growth in outsourcing and offshoring of the Source and Make functions have rendered warehouses the last (and often the only) corporate facilities to handle customer shipments. Throughout history, warehouse workers have been manual laborers that did a lot of lifting, moving, and loading. The goal of warehouse operations was to be cheap, mechanistically productive, fast, and accurate in order fulfillment. Automation has largely been deployed to achieve these types of operational objectives. Now that warehouses have become one of supply
chain’s most important functions, however, managers should revisit how warehouse performance is gauged. Are the operational objectives strategically aligned with the company’s competitive strategy? My experience tells me it’s unlikely.
Warehouse Goals Are Misaligned I’ve encountered situations in which warehouse operations were wildly successfully in meeting their performance objectives. The problem was that these objectives conflicted with corporate strategic goals. Three anecdotal examples are discussed below. First, during a conference I attended, I sat in on a presentation given by two warehouse managers from a pet foods company. The speakers boasted that throughout their company’s long history, 100 percent of orders were shipped on-time. Amazingly, this was their operational performance goal.
SUPPLY CHAIN INSIGHTS
insight
chain that did business in Puerto Rico. EXHIBIT 1 Each stores ordered goods They week, told athe story about an instance from an a warehouse which Warehouse Operational Performance to to Business Goals Aligning Warehouse Operational Performance Business Goals where order could in notFlorida, be shipped on Aligning loaded the goods in a container for shiptime because an item on the order was out Customer Response (Customer-Facing) goods ofment. stock.Often, Ratherafter thanthe ship the were order loadlate, t 0O UJNF 4IJQNFOUT t 1FSGFDU 0SEFS 'VMĂĽMMNFOU ed, of there would a lot of extra one them wentbeinto a local pet space store t $ZDMF TJNFT left bought in the the container. to save and productSo there. Theytransthen %P OPU SFMBUF UP ĂĽOBODJBM TUBUFNFOUT
repackaged shipped it to filled the customer, portation and costs, workers in the meeting theirwith 100 paper percent on-timeWhen goal. extra space products. ? Yet this solution surely the a store manager gotran thecounter extra to paper corporate goals as the company productsprofitability and realized that there was a obviously lost money on the product surplus, he would conduct a sale tothat get they purchased at retail andmanagers then re-sold at rid of them. Over time, were ? ? wholesale prices. Another concern was that running weekly sales—that is, until it the stock-out was not documented. I’m sure was discovered what the warehouse Asset Utilization (Internal) Efficiency (Internal) the company’s inventory managers would workers were doing. t WBSFIPVTF 5ISPVHIQVU 6OJUT BOE t -BCPS 1SPEVDUJWJUZ F.g., 6OJU #BTFE have liked to have been informed in order VBMVF
1JDLT )PVS
In effect, to meet transportation cost to prevent future stock-outs. t 0WFSýPX 4UPSBHF t WBSFIPVTJOH $PTUT objectives the warehouse t 1SPEVDU 4QPJMBHF BOE &YQJSBUJPOT t &GüDJFOU 1FSGFDU 0SEFS In this example, the sole workers objectivewere was 3FMBUF UP JODPNF TUBUFNFOU
t $BTI 'MPw invariably forcing store managers to on-time shipments, with no regard to prof 3FMBUF UP CBMBODF TIFFU
heavily discount paper products. This, itability. This is typical of “Perfect-Order� - -BQJEF i/PU 4P 1FSGFDU 0SEFSw 4VQQMZ $IBJO .BOBHFNFOU 3FWJFw of course, hadperformance significant impact on the goals that view in the eyes of grocery store’sabsent profitability, to say noththe customer, any company-view ing of the What disruption it caused to here the discount paper products. objectives to corporate-wide objectives. In an perspective. was needed instead This,that of align course, merchandise promotional plans. root ofimpact earlier Insights was an “Efficientmanagers’ Perfect Order� goal. This hadThe significant on the grocerycolumn, store’s “The Operational Performance more comprehensive objective supplements to sayTriangles� nothing of (SCMR the disrupthe problem: warehouse goals conflicted profitability, with corporate November 2008), I discussed an the Perfect Order goal with criteria on how tion it caused to theapproach merchandise objectives. formanagers’ establishing a set of balanced supply an order was filled in comparison to how apromotional plans.chain The root of the probA third and last anecdote involved supply chain performance objectives that align to corporate itcolleague was planned be filled.atImplementing lem:ofwarehouse conflicted with cor- (I consider this alignment to be whoto worked a manufacturer medical goals go-to-market strategies. an Efficientand Perfect Order The goal would havehadporate Objectives. the mark of an excellent supply chain). The approach supplies devices. company consolidated accomplished two important things: (1) the A third involvedas a suplogistical operations so that all inventories were and heldlast anecdote uses a triangle depicted in Exhibit 1. The location incident would have been documented and ply chain colleague who worked at a manuwithin the same warehouse. Warehouse performance of the “dot� within the triangle represents the balanced (2) no credit would have been given to fill- facturer of medical supplies and devices. was evaluated largely on productivity metrics, irrespec- focus among three types of operational performance ing the order because it was not filled prop- The company had consolidated logistical tive of the products handled. Because the supplies prod- objectives: efficiency, asset utilization, and customer erly (and thus cost the company money). operations so that all inventories were held ucts were high-volume (yet low-margin), the warehouse response. A second situation involved a grocery within the same warehouse. Warehouse director focused the business lion’s share of employee efforts on At each point the triangle are examples of operastore chain that did in Puerto performance was evaluated largely on in prothem. Consequently, he had less time to spend on the tional performance objectives that might be relevant Rico. Each week, the stores ordered goods ductivity metrics, irrespective of the prodsmaller-volume, faster-growing, and highest-margin to warehousing operations. However, note that a few of from a warehouse in Florida, which loaded ucts handled. Because the supplies products medical devices. these are not typical. For example, warehouse operations the goods in a container for shipment. were high-volume (yet low-margin), the Because my colleague worked in the medical devices are usually goaled by metrics based on unit volumes, such Often, after the goods were loaded, there warehouse director focused the lion’s share division and margin-focused, of picks, shipments, and receipts—without would be and a lothisofgoals extrawere spacerevenue left in the of employee effortsas on number them. Consequenthe constantly with the warehouse manager of goods handled. Adding in metrics container. So to bickered save transportation costs, ly, he had less to time regard to spendtoonthe thevalue smallerworkers filled in the extra space with paper volume, faster-growing, highest-marget medical-device orders shipped on-time and shipped based and on values such as the revenue, margin, and profitproducts. When a store manager thefinance ex- ginorganization medical devices.ability derived from goods will incent a warehouse to be before the supplies orders. got The tra paperwith products and realized there cash-flow Because permy colleague worked and in profitability the agreed him because fromthat a corporate more revenue oriented. Supplementing was a surplus, hesimilar would goals. conduct sale to goals, medical and hisgoals goals that wereare focused only on being cheap, spective it had Byaaligning thisdevices ongo- division the typical get of them.between Over time, managers werehaverevenue and margin-focused, constantly ingrid bickering managers could been avoided. productive,hefast, and accurate, with the values-oriented running weekly sales—that is, until it was bickered with the warehouse manager get align warehouse goals with other Specifically, goals around revenue, cash-flow, and profit- objectives would to better discovered what the warehouse workers medical-device orders shipped on-time and oriented performance should have been incorporated into corporate objectives. were doing. shipped before the supplies orders. The fithe warehouse director’s objectives. In summary, now that the warehouse is becoming In effect, to meet transportation cost nance organization agreed with him because more important to competing in the marketplace, it may objectives the warehouse workers were in- from a corporate cash-flow perspective it be time for managers to reset warehouse goals so that the Aligning with Strategic Objectives variably forcing store managers to heavily had similar goals. By aligning goals, this These anecdotal examples underscore that the ware- whole supply chain team works in unison to achieve corhouses of today need to have some performance porate-wide objectives. SCMPr www.scmr.com
Supply Chain Management Review
r
May 2013
May/June 2013
7
5
7
insight ongoing bickering between managers could have been avoided. Specifically, goals around revenue, cash-flow, and profit oriented performance should have been incorporated into the warehouse director’s objectives.
Warehouse operations are usually goaled by metrics based on unit volumes, such as number of picks, shipments, and receipts—without regard to the value of goods handled.
Aligning with Strategic Objectives These anecdotal examples underscore that the warehouses of today need to have some performance objectives that align to corporate-wide objectives. In an earlier Insights column, “The Operational Performance Triangles” (SCMR November 2008), I discussed an approach for establishing a set of balanced supply chain performance objectives that align to corporate go-to-market strategies. (I consider this alignment to be the mark of an excellent supply chain). The approach uses a triangle as depicted in Exhibit 1. The location of the “dot” within the triangle represents the balanced focus among three types of operational performance objectives: efficiency, asset utilization, and customer response.
At each point in the triangle are examples of operational performance objectives that might be relevant to warehousing operations. However, note that a few of these are not typical. For example, warehouse operations are usually goaled by metrics based on unit volumes, such as number of picks, shipments, and receipts—without regard to the value of goods handled. Adding in metrics based on values such as the revenue, margin, and profitability derived from goods will incent a warehouse to be more revenue and profitability oriented. Supplementing the typical goals that are focused only on being cheap, productive, fast, and accurate, with the values-oriented objectives would better align warehouse goals with other corporate objectives. In summary, now that the warehouse is becoming more important to competing in the marketplace, it may be time for managers to reset warehouse goals so that the whole supply chain team works in unison to achieve corporate- wide objectives.
www.scmp.in ...live supply chain Industry Portal for the Supply Chain Professional 8 SCMPr
May 2013
n practice
n trends
n knowledge
n white paper
n human resource
The Lessons of a Failure (II) In this second part of the series on the lessons learned from the failure of Hariyali Kisan Bazar, we look at the challenges faced by the firms that ventured into the underserved, yet rapidly developing markets. Today these markets represent a challenge for distribution and supply chains. We look at the challenges faced by the bottom of the pyramid markets. In the next part, we will look at the institutional and legal frameworks and the economic rigidities that make the rural supply chains inefficient.
I
Rakesh Singh Director, Durgadevi Saraf Institute of Management Studies, Chairman ISCM.
n the last column I had discussed the failure of Hariyali Kisan Bazaar retail initiative. Such retail initiatives involving direct marketing to the dispersed rural markets where only around 14 percent of the villages have population more than two thousands provides a major challenge in terms of distribution and supply chain costs. These markets were traditionally served through two major structural options vis-avis direct marketing initiatives. They worked well for the corporate targeting rural customers. The two structural options available to the corporate to reach the rural markets were super stockists model and the van operation models. The preferred distribution network was super-stockists primarily because in this model the company’s exposure was limited to fewer but large parties, ensures high service levels to sub stockist as they can create more frequent dispatches, easier credit facilities and are able to employ lower cost sales force. The only problem is that this requires very strong controls. But if controls can be
ensured this becomes a lower cost alternative. Today the rural markets have a share of 54 percent but what is also disturbing is that the penetration rates in the Indian rural markets are as low as 27 percent in aggregate. This indicates that super stockist model has not reached the last mile effectively. Hariyali retail as I discussed in the last column is not a very sustainable structure as trade margins are high, credit period is high and freight charges are higher since the locations are remote. The net result is huge proliferation of billing parties, and inability of the company depot to service distributors directly. All these leads to the well known variability issues which increases both inventory holding costs and cost of losing out on customer. A market which requires low price points for price sensitive farmers ends up in being a high price point and hence there is a big question on its sustainability. The whole dilemma regarding reaching rural market with standalone initiative like Hariyali has become a question mark for this reason. SCMPr
May 2013
9
benchmark What if a firm is able to map the supply chain so well that the variability issue is taken care of? In that case there are two isues that need to be tackled. Is the dynamics of rural demand sufficient enough to create a sustainable catchment area? Can a single firm build the capability and still be viable in such a dispersed and uncertain market? Let’s deal with the issue of demand in rural markets. In January 2012, Hariyali kisaan bazaar started complaining that it had seen a fall in demand in the past two or three months and according to them this continued till November and hence the retail stores became unviable and were closed .Income in agricultural sector has shown decline due to increasing cost of inputs like fuel, fertilisers and labour on the one hand and decreasing revenue from sale of various vegetables like tomato, potato and onion. Drought in the northern part of the country further deterio-
The Usilampatti, Vadipatti, Periyar and other regions around Madurai which were severely hit, were all under the MSSL ambit. MSSL suffered with the farmers as it could not get back the loans advanced, but continued with the operations for some more time. MSSL paid the supervisors for six months without any work being done, hoping that things would improve, but the second monsoon season also turned out a failure and the Vaigai-Periyar irrigation system did not receive any water and both Vaigai and Periyar dams were dry. Same was the case with the Cauvery belt also, with the Mettur dam becoming almost bone dry. As a result, MSSL closed down its operations in that office. The two examples of initiatives that made difference and which closed down subsequently raises many fundamental issues of managing the vast bottom of the pyramids
Firms actually forget that demand in such markets is not an enigma but requires an concerted effort on the part of the government to liberalise agriculture develop infrastructure and build institutions and crate legislations which would reduce transaction costs. rated the agricultural situation reducing rural demand. Here I recollect an experiment started by Mahindra’s called as Mahindra Subhlabh services. Mahindra Subhlabh had its first center in Madurai. Mahindra world as it was called gained attention by word of mouth by providing seeds and fertilisers and equipments on rent. The experiment went on to earn a great reputation. A student of mine from Great lakes Institute of Management visited these villages and a farmer mentioned to her that in the heydays, there was business of Rs 2 lakhs a day in the MSSL office. But after the consecutive droughts in 2002, crop production fell and almost 20,000 acres worth of crop were destroyed due to the droughts. 10 SCMPr
May 2013
markets in rural India. The backward, uncertain agriculture poses the biggest challenge for the businesses to succeed in these volatile and uncertain markets. Firms actually forget that demand in such markets is not an enigma but requires an concerted effort on the part of the government to liberalise agriculture develop infrastructure and build institutions and crate legislations which would reduce transaction costs of doing business in India and help firms reach these markets cost effectively and sell to the market which has stable demand. We will in our next column explore the institutional, legal and economic rigidity that makes rural supply chains inefficient... 10
guru speak
Challenges In Building A
Competitive Warehouse
Arif A. Siddiqui takes us through transition warehousing Industry in India has witnessed and challenges it’s face to become a competitive sector.
T
Arif A. Siddiqui He is the founder of Coign Consulting. He provides advisory services to Logistics companies and industry for developing distribution models, warehousing and transshipment infrastructure, business and operations strategies and organisation development.
he very important part in terms of direction the current warehousing sector is that: we have moved from godowns on to warehousing. This is not only a change in nomenclature but a fundamental change in infrastructure too. The second is the hierarchy of the warehouse in the overall value chain has risen. Earlier it was treated has a stocking point, storage point, dumping ground. Today it is not seen as a storage or a dumping ground , but seen as a value proposition to keep material for the particular purpose which is either oriented to the customer satisfaction or to meeting overall demand. It is seen as the very valuable conduit between the supply and demand. I am not yet talking about brick and mortar of the warehouse, but I am talking about the function of the warehouse. The reason behind the repositioning or rechristening of warehousing is the change in the demand pattern. When we are talking about the demand pattern, we are not talking about the fact that the earlier consumption used to be 100 units and now it is 1 lakh units. It is not that‌. it is only that a quantitative jump has taken place. There are several elements that are bringing warehouse to the forefront of the supply chain. One of them is hugely increasing variety of products, the numbers of SKU’s are increasing, and the variants within the given SKU are increasing. The short life cycle of
the product, the customer fancy towards the product and the drive to own it now rather than later too contribute to the rise of warehousing. The important of shelf presence, the ability of the customer to exercise his right to buy an alternate product in the absence of first product is very high. He can immediately change his decision. These dynamics make the role of the warehouse important. The product availability, the ability to replace the material on shelf quickly and the ability to connect the supply to demand in a very short time are the hall marks of a good warehouse. The importance of the warehouse in terms of its role has gone up because of these drivers. Other factors which deliver much higher value are product postponement, ability to change the product in a short given time, probably right just before the customer demands. This actually increases the role of warehouse. As the distance between the customer and the warehouse keep reducing the importance of warehouse will increase. For example take a Metro cash and Carry warehouse. Everything above the ground level is the storage area which is the warehouse. The ground level where customers walk - that is the picking area. You have now bought a customer into the warehouse to do his own pick. All you are doing is replenishing from the upper bin to the floor rack. This is how close the warehouse has now become to the SCMPr
May 2013
11
guru speak customer. And more it becomes customer facing, more value is created. The growth drivers of warehousing are customers, globalization, the short life cycles, and the variety of products. The other key growth driver is the various processes that add value. Earlier warehouses were generally box-in and box-out. They were very simple most rudimentary inward and out ward process. As warehouses became areas for adding value–receiving a box, de boxing, de-palletising, kitting, labelling, strapping, assembling, adding a manual in to a box, adding a cable to a laptop box, or putting a CD–these types of minor and major value added services are taking place in warehouse. They brought the warehouse back in to mainstream. The Indian warehousing Industry are facing many challenges and it is very unfortunate that many of these challenges have not been addressed in the recent past. The first challenge is that it has no indus-
The big challenge that we are facing is in terms of infrastructure design. Not many people who are involved in the businesses of designing have any idea about the functions. try status. You are completely orphaned. The warehousing income is treated as residential rental income. From a regulatory framework perspective, the biggest challenge, is till recently in many states there was no proper land zoning. You realise that you have a setup, but don’t have proper legal status. A number of warehouses currently under construction do not have legal status. There are no proper policies which support or facilitate the development of large warehouses and logistics parks. In India what we have is SEZ’s and FTWZ’s that support exim cargo, but there are no such schemes for the domestic tariff area like you have in Jabel Ali in Dubai 1000 acres of land which is ear marked for the set-up for warehouses. We end up developing warehouses in godforsaken places 12 SCMPr
May 2013
where there are no road, no electricity and no connectivity. It is difficult for workers to go there and work. Land has become so expensive that it’s not viable to buy a land to build a warehouse. Because at the end of day it is rental income and there is only a finite amount you will be able to earn as rent. The second big challenge that we are facing is in terms of infrastructure design. Not many people who are involved in the businesses of designing warehouses have any idea about the functions that a warehouse has to provide. A warehouse is a very functional building, it is a building which helps you improve efficiency, it helps you in facilitating your process. But you need to understand the processes, the functions and the various nitty gritty of warehouses before you design the entire building. If warehouses have been designed with the sole perspective of covering a larger area, how can you design the most economical warehouse? If you build the cheapest warehouse building irrespective of the impact it has on the operations, there is no integration that can take place. The design has to be married to the function. If not, you will not see the optimization, efficiency, standardisation–you will not be able to benefit from any of these areas. The big point is that very few warehouses are functionally oriented to deliver efficiency. Most of the warehouses that are currently being developed independently (with the objective to occupy larger land) you get a building which is very low in costbasic floor, walls and roof. The designers and architects do not have functional exposure–they do not understand trucks, fleet sizes and docking requirements etc. And they end making warehouses with lots of mistakes. Its more copying what the neighbour has done. The mistake is continued and has a ripple effect. You take one bad warehouse and copy that and this leads to to a whole community of mistakes. One of the main reasons for this bad design is that the occupier is unable to demand a particular design. The point is the occupier enters very late in the game. He comes in to the stage after the warehouse have been designed and constructed. If occupiers are able to forecast their requirements much in advance, then you will start seeing built-to-use warehouses which are built initially to suit 12
guru speak specific requirements and subsequently are available for lease. Let us also appreciate the developer’s side. If the developer is going to build something on a speculative basis then he does not want to build something very expensive. Because he does not know who the occupier is and he ends up with a toned down warehouse. Another challenge is in terms of non availability of skills. There is huge shortage of skilled manpower in warehouses. You require more number of people as you grow. There are no training institutes. It is not a matured high skill industry where you can take people from polytechnics etc. You end up taking people from the road and you hire them at `5000 to `6000. And these are the people who are entrusted the role of actually executing a very important link in the supply chain which is the receiving of the material and despatching of the material. Wrong despatches, delayed despatches and damaged despatches etc are all takes place in the warehouses because of these unskilled and non educated people who understand nothing , who cant read properly, who can’t write properly. As a result, these losses could be as high as 3%, 2 to 3% in certain cases. I am not talking of only pilferage; I am also talking about damage or wastage and also the cost that comes from customer dissatisfaction. There are several other challenges we could look at in terms of warehouses in far flung areas - electricity is very big problem. Water is another big problem, hygiene is a big issue. Lot of these is related to design. About 95% to 98% of warehouses designed in India that do not have basic toilet facilities. And imagine 150 people with not a single toilet, no drinking water, no arrangement to sit and rest etc...what type of productivity you expect from such environment? Strangely, food and Pharma actually occupied some of the worst warehouses in the country. IT, readymade garment and televisions occupy the best warehouses in the country. The most important challenge which we face is the inability of the supply chain managers to associate actual cost v/s total cost the inability to understand what total cost is. He is actually looking at what is it costing him - the rent of this place. He will take the space at whatever low price – say `9 per sq.
feet even if there is no road outside, even if the truck cannot turn or cannot dock properly. He is interested in the `9. If there is a space available at `14, but has all facilities, he looks that `5 as an incremental cost. We are not measuring dock to stock, we are not measuring stock to dock , we are not measuring turn around time, we are not measuring order to dispatch time, we are not measuring pick efficiency, dispatch efficiency, we are not measuring any of these. We are not measuring how long it takes a vehicle to get
Service providers please elevate your status–from a pure commodity service provider to a value added specialised solutions service provider. in. Even if we are measuring it somewhere, we are not associating it to efficiency. When I ask people how long it takes to offload a vehicle, they have an answer. But they do not understand the impact of that answer on the overall supply chain, and its cost. Another important challenge is the changing the perception of the client with respect to the service provider. The whole process of outsourcing started when somebody said lets focus on our core competencies and let’s outsource what is not core to us. You consider him as a specialist. The problem today is the customer who is receiving the service from 3PL is not considering 3PL as specialist. Because 3PL are not reflecting, not learning, or coming out with solutions or giving the impression that they are specialists. Service providers should elevate their status–from a pure commodity service provider to a value added specialised solutions service provider. Unless and until you do that, you will not be able to find your importance. You will just be a cog. Your customer will see you as a manpower provider, he will dictate terms to you, and he will tell you this is the way you should do your business. How can you create a competitive warehousing sector in India? SCMPr
May 2013
13
Lead story
14 SCMPr
April 2013
lead story
Warehousing
Heart of the Supply Chain
Warehousing has become the cornerstone of Efficient Supply Chain Network. Girish V.S. explore the changing concepts and trends in warehousing through it’s transition from storage point to distribution centre.
W
arehousing is often dismissed as the low-tech, low-innovation, plain Jane ‘workhorse’ of the supply chain industry. But, in fact, warehousing is pivotal in enabling the logistics industry to keep up with the fast pace of change. Add to it the fact that supply chain are moving from small isolated chains to multi-chain networks, and that delivery times are getting compressed, we have our work cut out for us. In earlier times, the standard process for a warehouse was very simple–receive goods, dispatch goods, and track returns. But the dynamics of multi-channel environment makes it increasingly complex. We begin with an exploration of the “Application of Theory of Constraints on Warehousing”where we use the Theory of Constraints principles to smoothen warehouse operations. We then explore “Three Supply Chain Trends That Will Change Warehousing”–We focus on three major trends in supply chain-network design, segmentation, control towers, Offshoring, multi-channel fulfillment and demand synchronization–that will change how we manage our warehouse. We move on to “Driving Performance Management in the Warehouse”–where we look at the productivity gains and savings from a properly installed Performance Management by highlighting operational problems, improving methods and developing a system of goals and feedback for all people involved. Our next article deals with the “Business Case for Sustainability in Warehousing Distribution”–where we will consider the crucial business component of economics and the environmental benefits equation and look at whether green practices can deliver economic returns within reasonable periods of time. In our next article, we take a look at “Warehouse Operational Metrics Definitions” and how to link key measures to various demographics to help company’s compare themselves to organizations similar to their own. There is often a lack of consensus–or sometimes, understanding–of what the metrics actually mean. Use of an agreed upon standard and definition will go a long way in assisting firms to understand and compare internal performance. Lean Techniques For Warehousing - A paper about how Lean is one of the best-received business strategies for finding efficiencies and profit in an organization and how it is a systematic approach to identify and eliminate waste in every area of operations. And we round up our look at warehousing by an article on E-Commerce and Warehousing– how the exigencies of e-commerce is forcing us to look at warehousing in a different light–of how firms have to decide on physical locations of warehouses, fulfillment of e-commerce orders from separate facilities, in-store, from existing warehouses or a combination of all three. Happy reading.
SCMPr
May 2013
15
15
Lead story
TOC
Application for wareh using Theory of constraint has delivered massive benefits in all areas of application. There is no reason for the theory to fail in the warehousing domain. Piyush Shah highlights TOC application in warehousing.
16 SCMPr
May 2013
D
r. Eliyahu Goldratt introduced the Theory of Constraints (TOC) through his path breaking book, “The Goal� in 1984. TOC based projects are now carried out by almost all companies and is taught in almost every leading business school throughout the world. TOC started out as a manufacturing improvement methodology. Applications were then created in project management, distribution and supply chain, enterprise planning systems design, etc. BP used Theory of Constraints to accelerate the cleaning of the Gulf of Mexico after the massive oil spill in 2011. Habitat for Humanity, a humanitarian firm involved in making and repairing sustainable houses in Asia Pacific used the Theory of Constraints to
lead story make a house in 3 hours and 44 minutes. This is a world record. There is virtually no literature available to discuss the use of TOC principles for warehouse operations. In the book “The Choice”, Dr. Goldratt creates scenarios to apply TOC for the replenishment process at the warehouse that is a part of a distribution network. Dr. Goldratt in his book portrays the warehouse as a part of the supply chain system. We look at warehouse as the system.
The theory in brief The core message of TOC is that the output of any system is dictated by the slowest or the weakest operation – very much like the concept that the weakest link of the chain determines the strength of the chain. In a manufacturing facility, the slowest machine determines the factory output. In a project, the constraint is the critical path or rather the critical chain, as Goldratt terms it. This critical chain is the constraint and needs to be continuously monitored for on time completion. Once the constraint is located, it should never be allowed to idle and the entire facility should be tuned to work at the pace of the constraint. All the resources that are needed for the constraint should be readily available. The easiest way to increase capacity would be to increase the capacity of the constraint. The simplicity of this message masks the profound philosophy of TOC. The constraint could be a physical resource – like a machine, space and labour. It also could be customers or in many cases, the constraint could be the mindset and the policies of the firm. For a large warehouse with spare capacity, the customers would obviously be a constraint. In some other cases it could be the forklift or the labour. For warehouses with a fixed outbound despatch time, this time could be the constraint.
Knowing the constraint A simple way to start on this would be to look at the most frequent complaints from the warehouse supervisors. If they indent for additional forklifts there is a good chance that the forklifts would be the constraint. If the supervisors keep pushing for multi tier racking systems, then the space could be a constraint. In the rare scenario of there being no complaints, there is a chance that the warehouse has lesser customers than what it can handle. So, the customers could be a constraint for that facility. This is not a fool proof way of finding the constraint, but it could be a good way to start. Changes could be made in the warehouse operations
policies on the complaint based constraint. If the warehouse performance improves, you have identified the constraint. Of course there are better ways to do this. A detailed work analysis could be carried out and the average load for every resource estimated. An elaborate set of metrics would have to be created to measure performance. A load profile could then be developed and the constraint could thus be accurately traced. This would however take considerable amount of time. Using the complaint based method for locating the constraint is an intuitive and a much faster method.
The constraint based pricing Obviously, the constraint is the most valuable resource for the firm. A labour being paid Rs. 200 per hour could be more important than a VNA worth Rs. 50 lakhs if labour is a constraint. Assuming that labour is the constraint, underutilisation of one
The degree of usage of the constraint is the most important thing in pricing. By using the wrong base in pricing decisions the customers are motivated to behave adversely. worker could limit the output of the warehouse. This would not be the case for a VNA with inherently higher capacity. The cost of providing a service is directly proportional to the degree of usage of the constraint. Take the case of a warehouse that is forced to limit its operations because of limited availability of labour. A customer that has a high SKU count and a high pick frequency is more expensive for this warehouse than a customer with infrequent deliveries. For a warehouse with a limitation of space, a customer with high pick frequency might in fact be a better customer. The degree of usage of the constraint is the most important thing in pricing. By using the wrong base in pricing decisions the customers are motivated to behave adversely. For a warehouse with labour or material handling device as a constraint, the contract must clearly limit the number of transactions. SCMPr
May 2013
17
17
lead story For a warehouse with space limitations, customers must be motivated to have greater transactions so that the warehouse can earn more money from the same space.
Constraints shift Most warehouses have a peak time by which all the despatches need to happen. Suppose that the vehicles need to leave the facility by 5 PM. In this case, the warehouse would have a rush for work from say 2 PM to 5 PM. The labour or the material handling devices would be the constraint in this time. But, after 5 or at noon, neither the labour nor the material handling device would be the constraint. Effort must be made to reduce the load on the bottleneck. During non peak hours the labour could
A detailed work analysis could be carried out and the average load for every resource estimated. An elaborate set of metrics would have to be created to measure performance.
Policy as a constraint The experience with implementation of TOC in other sectors has confirmed that firm policies could be the biggest constraint. Batch sizes and the policies of full truck loads are designed to optimise the internal costs of firms. However, these very policies could cause a significant reduction in both the availability and variety for the customer. The lack of discipline is a constraint in itself. Because the items are not put away accurately, a good amount of time would be spent on tracking and tracing all the SKUs in the stores. Policies on how and where to put away the received stock could have a huge impact on the distance travelled by the labour and other workers. The policy to have only one despatch window also creates a large and temporary load at one point of time. Maybe, having a second despatch widow could limit the temporary surge in labour requirement. A warehouse may thus plan for two despatch windows–at say 11:00 am and the other at 4:00 pm. This could reduce the peak time load on the constraint by half. One of the biggest policy constraint is the lack of good metrics in most warehouses. While the idea of selecting the right metrics is an issue for another article, it is sufficient to mention here that not having metrics limits the ability of warehouses to take the right steps. It would be impossible to know if the low equipment utilisation is due to maintenance failure (which again could have many reasons) or due to the lack of training of the operator.
The last words stock the regularly despatched items closer to the staging area. And, the items that are not despatched could be again put back in the regular location after the peak time. Such actions do create an overall increase of labour activity. But, in peak times, when labour is actually a constraint, the movement for picking process is reduced. In the example above, the total work content for labour was increased. But, the work content for labour in the peak time was reduced. This would obviously allow the same labour to conduct more number of picking activities in the peak period. Since the load on the warehouses change with time, the constraints would also change. Accordingly, the activities need to be planned to reduce the bottleneck load in the peak times. A warehouse manager is an expensive resource. But, in peak times, the labour would be much more expensive. The warehouse managers could thus in peak times indulge in any work that could reduce the load on the labour. 18 SCMPr
May 2013
Theory of constraint has delivered massive benefits in all areas of application. There is no reason for the theory to fail in the warehousing domain. The key would be to ensure that the senior warehousing team is adequately informed about TOC. Firms have created local language versions of Goldratt’s books and have forced all their executives to read. Local language audio visual content also exists to educate. Unless the entire firm is clear about the goals and methods of TOC, sustaining the implementation would be difficult. Like all improvement initiatives the push for change must come from the top. In case of policy constraints, the object of the change should also be the top management. It is easy to lament on the lack of morals or discipline in the rank and file of a warehouse. A better way would be to create policies and an incentive structure that automatically moulds behaviour to optimise the usage of the constraint and thus increase the output.
n practice
n trends
n knowledge
n white paper
n human resource
Supply Chain Trends will Change Warehousing The Indian warehousing sector has been constrained by a number of factors – legal status being just one of them. Indian warehouses are emerging from the dark ages–where they were considered a place for the producers to dump their products–to a slightly improved status of service provider. Te producers do not yet see warehouses as a specialized service that can add real value to their operations. However, we can learn from the experience of global players, who have today become a core part of a complex supply chain. Girish V S takes a look at three trends in supply chain that will affect warehousing and try to analyze the impact of these trends.
W
hile researching on areas to focus on for your magazine, we came upon an interesting area–how major supply chain trends will affect warehousing. We felt it would be interesting to bring to you a brief, thought provoking article on the impact of some of these trends. We restricted ourselves to just three such trends.
Supply Chain Network Design. A firm’s supply chain allows it to move product from the source to the final point of consumption. Network design involves building a mathematical model of the supply chain. This model is then solved using optimization techniques and then analyzed to identify the best solution. Specifically, firms focus on modeling the supply chain to determine the optimal location of facilities - warehouses, plants, lines within the plants, and suppliers and the best flow of products through this network structure. The typical strategic logistics network design problem considers the number of warehouses required, customer service delivery requirements, the inventory investment required under alternative network configurations, inbound and outbound freight costs, and facility costs. Facility costs include SCMPr
May 2013
19
lead story labor, land, construction, taxes, and other regional location variables. When the firm develops the optimal network design, it needs to evaluate appropriate trade-offs between all relevant costs and variables. For example, the location and number of warehouses in a network will impact the cost of inbound freight versus outbound freight. Typically, a network with many warehouses will have lower outbound customer delivery freight costs than will a network with one or a few warehouses. To add to the complexity, the products handled too create their own constraints. The requirements for an Ultra Fast Moving Consumer Goods wil be quite different from that of a food product. During the design process, some firms first determine the basic facility layout, capacity and technology that represent their “standard” configuration for each warehouse and then decide the optimal number and locations of warehouses for their network. A few firms the sequence is reversed. First the firm performs its evaluation of freight, warehouse location and other logistics costs, and then the warehouse layout, technology and automation planning. Both these approaches have their merits. However, a far better alternative would be to go in for an iterative process, with both the network design and warehouse design start off together, and after each step, the teams exchange notes, incorporate the design changes based on the feedback. This approach enables a holistic view and balances total logistic network annual operating costs, investment costs and service levels with opportunity to use technology to control variable rates, such as the amount of labor and utilities required within the warehouse.
Demand Synchronization Both producers and sellers face a unique problem – either they run out of stock or they hold excess inventory. For most firms, manufacturers or a retailer, having the right product at the right place at the right time and at the right price continues to pose a challenge. Managers have to perform a delicate balancing act every day - balancing transportation costs against fulfillment speed, inventory costs against the cost of stock-outs, customer satisfaction against cost to serve, new capabilities against profitability. To make matters worse, supply chains are now going global – companies are now sourcing their requirements from the best fit supplier across the globe. On the other hand, big buyers in the retail sector are forcing the suppliers for items that can be straight away put on to their shelves. Demand synchronization is the process, through which the supply and demand are accurately matched. Using a combination of actual data 20 SCMPr
May 2013
and forecasting techniques, the manager can identify potential out of Stock or excess inventory scenarios and proactively intervene. It is difficult to scale the manufacturing process, unless it is for custom made goods, based o customer demand. The plant has to produce at economically viable batch sizes. The producer will not individually pack and label goods as per each customer’s requirement. And if the supplier is located overseas, there is a time and customs formality element that needs to be factored in. A good warehouse can step up to meet these challenges. The first set of people who will come to know about changing demand patterns is the warehouse managers. They are aware of the ebb and tide of demand and have the metrics to be able to analyze it.
Once the warehouse evolves into a supply–demand synchronization unit, it will be able to realize higher revenues from the existing flow of goods. Instead of looking at the warehouse as a dumping yard, business would do well to integrate the inputs from the warehouse into their production planning. A networked warehouse will be able to source product from across the network, and move it to the customer to minimize stock outs. The warehouse will be able to monitor the demand of goods and route the dispatches. And having an idea of potential demand will enable the warehouse to stack them ready to dispatch, during the lean hours, thereby maximizing the labor thru put. At the same time, the warehouse can extend the value added services like labeling and packing the units so that they are shelf ready. Once the warehouse evolves into a supply –demand synchronization unit, it will be able to realize higher revenues from the existing flow of goods. It ceases to be a dumping yard pricing itself on area used for storing.
Multi Channel Fulfillment In today’s networked world, customer touch points have risen exponentially. Companies are constantly looking at new ways to reach their customers or develop new market segments for their products. They
lead story Multi Channel Fulfillment chart Sales Channel
Fullfilment Method Product Flow
Shipped Out As
MNE Options
WHOLESALE
Cross Dock
Immediately Shipped
Pallet
Lift Trucks
RETAIL
Pool Point
Product Sorted to Outbound Pallets
Pallet
Potential for automated sortation
DISTRIBUTOR
Full Case Out
Product Stored / Full Case Picks
Pallet and LTL
Pick modules and automated sortation
DIRECT TO CONSUMER
Split Case
Product Stored / Each Pic ks from Case / Packed
Pallet, LTL, or Parcel
Pick modules / Pack Stations / Automated Manifesting / Sortation / Truck loaders Source: Trifactor
are forced to distribute their products using multiple channels. These channels could be the traditional stores, mail order, phone, TV stores, Malls, internet and mobile mediums. Companies are demanding that their distribution networks be able to serve these additional markets and at the same time, continue exceeding customer satisfaction without adding real estate. The concept of Multi-Channel Distribution under one roof is not new. But the additional demand that they meet and exceed customer service levels is straining even the best of networks. One of the challenges of developing a multiple channel distribution network is aligning both the external and internal elements of the Supply Chain with the customer serv-
ice expectations. Traditionally, the warehouse or distribution center operations have been the most overlooked and least understood link in the Supply Chain. Most warehouses are designed to support retail and distributor deliveries. They receive full pallets, store them and send full pallets out. But all that is changing. Today, warehouses are required to handle both low volumes, high number of items from the stores and distribution channel as well as the high volume low number items from e-channels. And the same set of people, process and equipments has to be able to handle both. Again, this is an area where the warehouse can add value and realize higher revenue.
www.scmp.in ...think supply chain Industry Portal for the Supply Chain Professional SCMPr May 2013 21
Lead story
Driving Performance Management 22 SCMPr
May 2013
lead story
Tough times never last, but tough people do. But for the tough people to outlast the tough times, they need to be able to conserve their cash burn rate, reduce costs and boost revenue from every quarter. This is easier said than done. We have had a long series of cost optimization drives in our corporate entities. Almost every paisa that could be saved, are saved. Process efficiency and manufacturing efficiency have been the buzz words. And we have scraped the bottom of the barrel as far as costs are concerned. The one function where inefficiencies still exist is in the supply chains. We take a look at the performance management possibilities at the warehouses.
T
he Supply chain cost to the Indian companies is around 14 to 15% of the total costs. This is against a 8 to 10% range for developed economies. Studies in the US and Europe show that warehousing accounts for 20% of this cost. (Unfortunately, no such figure can be estimated for India, given that warehousing income is still considered as income from house property!) This leaves a potential savings of around 5% to be tapped into. Companies today are targeting the logistics and supply chain areas for gaining cost advantage. The reduction of warehousing costs reduces the total cost of goods sold and helps companies have improve their profit margin or at the most basic level, derive a cost advantage in comparison to their competitors. In this article we examine the possibility of companies gaining cost advantage through efficient Warehouse Management. The goal of this article is to expose the next best practices that can be used in warehouse performance measurement which will lead to performance improvements and as a consequence attain cost reduction. Warehouse performance measurement is commonly defied as the measurement of: how the warehouse uses its storage space, the customer relationship management, quality level, assets usage and cost structures of the warehouse. We take a look at the warehouse performance indicators, common methods of their calculation
and interpretation, and the uses of the metrics to improve the warehouse performance. Under normal circumstances, we would be able to quantify the efficiency and effectiveness of an action or activity in the warehouse, identify if the work is performed in the right way, (or if not what is going
There are two pillars of the performance management system – performance indicators and process mapping. These two pillars complement each other. wrong) and identify the causes of poor performance and its correction. However, given the nascent stage of the Indian warehousing sector (Though officially it is yet to get the status of a sector) it will be difficult to create an empirically tested performance management system. What we can do is to extrapolate the results from other sectors and derive a plausible SCMPr
May 2013
23
23
lead story performance management system. And refine the system as we go along. The normal process of performance measurement is defining a set of performance indicators, also called key performance indicators (KPI). KPI’s are specific characteristics of the process which are measured to identify if the process are being delivered as per the accepted norms. The best way to use KPI’s are to compare process values with normal, standard values. As is usual with any metric, specifically a KPI, there is a profusion of indicators – variously defined at over 130 individual processes. However, for the sake of sanity and pan of control, there are a few indicators that are globally accepted KPI’s for warehouse performance management. They are storage surface, storage volume; storage racks, number and characteristics of docks, pallets per hour, pallets per square meter, opening hours; dangerous items; possibility for temperature control; separation of storage areas; geographical distance to highway connection, train, waterways; certification; opening hours; assistance with customs; use of technology; handling equipment; assistance with customs. These indicators can be grouped under three broad heads - order fulfillment, inventory management and warehouse performance. Such grouping helps the warehouse manager in identifying the core issues and areas f non-performance or poor performance easily. All the manager has to do is to pick the relevant metric she wants to measure and add it to the group it belongs to.
And for the Oder fulfillment group we can use: Measure
Calculation
On-Time Delivery (max.)
Orders On-Time / Total Orders Shipped
Order Fill Rate (max.)
Orders Filled Complete / Total Orders Shipped
Order Accuracy (max.) Error
Free Orders / Total Orders Shipped
Order Cycle Time (min.)
Actual Ship Date – Customer Order Date
One easy type of grouping under the Inventory Management can be: Measure
Calculation
Damaged Inventory (Min)
Total Damage / Inventory Value
Days on Hand (min.)
Avg. Month Inventory) / Avg. Daily Sales/ Month
Storage Utilization (Max)
Avg. Occupied Sq. m. / Total Storage Capacity
Dock to Stock Time (min.)
Total Dock to Stock Hrs. / Total Receipts
Similarly for the Warehouse Performance Indicators we can use: Measure
Calculation
Orders per Hour (max.)
Orders Picked or Packed / Total Warehouse Labour
Items per Hour (max.)
Items Picked/Packed / Total Warehouse Labour Hrs
Cost per Order (min.)
Total Warehouse Cost / Total Orders Shipped
Cost as % of Sales (min.)
Total Warehouse Cost / Overall Sales
24 SCMPr
May 2013
The bigger issue here is to develop the standard or industry benchmark for these indicators. Is an On time delivery rate of 98% acceptable or do we have it at 99.99%? Is 5 orders per hour processed adequate or should it be 10. These are issues that the warehouse manager needs to grapple with. And develop acceptable benchmarks for each process in the warehouse. An easy way to identify the issues in the warehouse is to generate a Warehouse process heat map. The heat map essentially is a visual tool to identify subpar performances and brings it up to the notice of the warehouse manager. The underlying assumption here is that the warehouse has a technology solution in place – either as a warehouse management system or some form of enterprise systems. If the warehouse has a WMS, it will be easy for the manager to collect performance metrics – it can be delivered to the manager via a dashboard. The message for warehouse performance management is simple. There are two pillars of the performance management system – performance indicators and process mapping. These two pillars complement each other. It is easier to establish key performance indicators for a warehouse after a process map was drawn, considering any other indicators used globally. The process map on the other hand provides a 60,000 feet view needed for establishing relevant performance indicators. Performance indicators are useful for identifying the problems – abnormal values of the indicators act as a control system for a warehouse. This is the easier part. The difficult part is to use the metrics to solve problems. There is a very simple and effective way - identify the causes of the problems and then try to diminish their impact or just eliminate the causes. It is a causeeffect approach, easy to be applied by any manager. Warehouse performance measurement means discovering the problems of the warehouse and solving them before it becomes a larger issue leading to loss of business. It is a way to reduce costs by improving operations that take place in a warehouse, and having low costs is an essential feature of differentiating logistics firms. These key performance indicators can be equally applied to a small warehouse as well as a large warehouse.
n practice
n trends
n knowledge
n white paper
n human resource
Business Case for Sustainability in Warehousing Distribution Sustainability is the mantra for the chiefs of corporate houses. Sustainability is a core part of any government, board or NGOs. However, world over, warehousing has been a very reluctant adopter of sustainable practices. Green initiatives are beginning to take rot in warehouses in developed parts of the world. The scene in India is the opposite. Sustainability and green initiatives are by and large absent from the Indian warehousing sector. Sure there are the rare exceptions. But they still are rare. Girish V S takes a look at the business compulsions in sustainability and asks – does it really make business sense?
S
Sustainable management is a concept for integrating and balancing economic, environmental and social dimensions, commonly termed as TBL or triple bottom line, into decision making. It is usually believed that sustainability and green initiatives are a luxury developing countries cannot afford. China is a prime example. However, the developed world has a different view. In a survey conducted by The Material Handling Industry of America, 92% say their companies believe that sustainable initiatives have the potential to save money and resources. Other benefits of sustainability are bringing greater awareness to the market, tax incentives, utility rebates, and a competitive edge. There are a few basic sustainable parameters in warehousing that can reduce energy consumption and thereby reduce the carbon foot print of the warehouse. Environmental Responsibilities–this cover the green aspects of sustainability such as electrical use,
Major Parameters for Sustainability Model n Investment
that is necessary to improve staff efficiency and reduce labor. n Optimum numbers of employees to ensure employees are not overworked. n Employee Training to ensure high employee productivity and effectiveness and continuous up skilling. n Reducing carbon footprint by planting trees and air filtering. n Choosing the right transportation as various modes of transport have significant differences in carbon emissions.
fuel and water consumption, and recycling. There a number of initiatives that can be listed as environmental responsibilities. These include solar photovoltaic roof panels for the generation of energy, thus minimizing the need for fossil fuels and reducing the dependency on the electrical grid distribution system. Additionally the energy produced is free of carbon emissions. Another aspect is the architecture of the warehouse itself which will reduce the dependence of electric lights and rely more on natural light. Warehouses can use energy efficient light systems equipped with motion sensors to reduce the wastage of electricity. Other uses could be Rainwater harvesting, Low water use appliances, Sustainable building materials Social Responsibilities–This includes safety and community activity measurements. A tour of the average warehouse is a nightmare. Electric cables strung across storage sections, rats and other pest infestations, lack of fire safety audits and drills, the list could go on and on. Coupled to the fact that most warehouses are either located in remote locations or in old city centers, destruction by fire is a real and omni-present danger. God forbid, in case of a calamity, the chances of loss of goods stored and lives are very real. Safety track record of a warehouse will be assessed by MNC customers before they outsource their needs. And warehouses that do not make the cut will lose out. Profit Responsibilities–touches upon the cost savings sustainability will bring in through increased efficiencies and improved operational excellence. SCMPr
May 2013
25
lead story Most warehouses in India have little regard to susInter-relationship Among the Sustainability tainability or concern for the environment nor do they Dimentions of the Business understand the consequences of their actions on the society at large. They are solely driven by cost reduction, customer satisfaction and profits. Time has come for us to take a look at the impact of our actions of not only the environment, but on the legacy we bequeath to our future generations. In order for the company to move towards sustainability, they have to consider and balance the tradeoffs between minimizing costs as well as being both environmentally and socially responsible. A sustainable warehouse would have to balance the economic factors, like as rent and operations costs, with the social and environmental effects that occur within the wareIt is quite easy to break up sustainable warehouse house compound as well as its surrounding vicinity. management intoor concern simplerforand manageablenor do they A simple but effective measure of sustainabilityMost is warehouses in India have little regard to process sustainability the environment understand the consequences of their on the However, society at large. They arecannot solely driven parts foractions modeling. modeling be by cost the concept of Net Zero Energy User–firms who proreduction, customer satisfaction andinprofits. Time hasis come for us to takeand a look at the impact of our done isolation–it the interaction relationship duce (or buy) at least as much energy as it uses (from actions of not only the environment, but the on the legacy we bequeath to our future generations. between parts that are important. Sustainability renewable sources). It also produces zero greenhouse models need to be developed in such a manner that gas emissions as a by-product of that use. To achieve In order for the company to move towards sustainability, theyfrom have individual to consider effects and balance the this, the warehouse must be as energy efficient as posthis helps in shifting the focus tradeoffs between minimizing costs as well as being both environmentally and socially responsible. A to interconnected systems. Therefore sustainable waresible and should produce as much renewable energy as sustainable warehouse would have to balance the economic factors, like as rent and operations costs, house management models need to address the interpossible. Given the large areas that a warehouse occuwith the social and environmental effects that occur within the warehouse compound as well as its relationships of economic objectives, employee welfare pies, and the climate of India, a warehouse could move surrounding vicinity. and minimization of environmental impacts in an invery close to the net zero energy user concept easily. tegrated fashion. Itis helps the firm get maximum A simple but effective measure of sustainability the concept of Net Zero Energy benefit User – firms who sustainable warehouse, andsources). establish a winproduce (or buy) at least as from much the energy as it uses (from renewable It also produces zero Five Ways to Stimulate Sustainable Warehousing proposition triple this, bottom lines. Asmust a first greenhouse gas emissions as awin by-product of that for use. the To achieve the warehouse be as energy According to European Logistics Hub efficient as possible and should produce as much renewable as possible.which Given the step, a causal diagram has toenergy be constructed, willlarge areas that a warehouse occupies, and thethe climate of India,link a warehouse move close to the net zero help managers cause tocould effect. Thevery cause-effect 1. Automation energy user concept easily. diagram created should identify the interdependence Automation of order picking can improve the efficiency of the wareamong various issues and present an influence diagram. housing and distribution process significantly. It consumes less energy It is quite easy to break up sustainable warehouse management process into simpler and manageable This will help the managers understand the impact of (because you can use small areas that require less lighting and coolparts for modeling. However, modeling cannot be done in isolation - it is the interaction and relationship their decisions on the sustainability dimensions. ing), reduces the error rates and needs less manpower. between the parts that are important. Sustainability models need to be developed in such a manner The next step to modeling a sustainable warehouse is 2. Insulation that this helps in shifting the focus from individual effects to interconnected systems. Therefore creation a sustainability scorecard. The scorecard will A simple measure to make your warehouse logistics greener, is insulasustainable warehouse management of models need to address the inter-relationships of economic used to monitor status of various tion. Good insulation saves energy: because the insulation you objectives, makes employee welfarebe and minimization of the environmental impacts key in ansustainabilintegrated fashion. It ity benefit performance indicators. A few examples sustain-a win-win need less energy to heat a building. In this way you alsothe save helps firmmoney. get maximum from the sustainable warehouse, andofestablish ability tracking parameters include Cash flow, Ware3. Optimize truck loadings house utilization, Carbon emissions, order processing When it comes to truck loading, loads can be optimized to fill every time, environmental impacts on surrounding areas etc. space possible. In this way the amount of trucks is reduced and this Sustainable warehouse management and operations has its immediate effect on emissions and carbon footprints. are a pre-requisite for the transformation of existing 4. Packaging warehouses into sustainable ones. This involves the Another important topic in logistics is packaging. Recycling packaging development of sustainable policies, identifying the materials helps to save the environment. Also you could consider usproblems, assessing options for addressing the probing less packaging materials or more sustainable types of packaging. lems, considering inter-connected issues, and taking 5. Lighting into account the long-term pros and cons. But to be Lighting is one of the biggest facility costs in warehouses. Therefore it able to explore such issues, an environment that enais important to think of more efficient ways to use light in warehousbles managers to simulate the complex interdependenes. For example use energy saving lights, timers and motion detectors cies between the social, economic, and environmental to light only the sections that are used. dimensions is required. 26 SCMPr
May 2013
26
Lead story
lead story
Warehouse Operational Metrics Supply chains are becoming central to an organization’s operational efficiency. From being mere movers of goods from point A to point B, we now speak of value addition coming from the supply chains. And integral to the supply chain is the warehouse. Measuring Warehouse Key Performance Indicators or developing Warehouse metrics is a critical issue if we are to provide warehouse managers with the ability to visualize clearly and unambiguously the potential issues and opportunities for improvements. These metrics tie in to the business strategy, which drives operations and operations success drives the financial performance. However, most organizations operating warehouses either have no metrics, don’t have the right metrics, have the right metrics but lack real time feedback or have metrics but do not take action on the results. If warehouses are going to be a source for adding value to the supply chain this must change. Girish V S takes a look at the issues in Warehouse Operational Metrics.
I
t has been a bumpy ride for the economy over the past three years. The experts say they see “green shoots” in the economy. The economy, according to them, is poised for a takeoff. The question is are we as supply chain professionals ready to navigate the rapids as the economy accelerates? Do we have the right set of numbers to compare and benchmark? These are questions we need to ask ourselves. Let us take stock of what we have – we have fairly well developed network and process optimization methods which will create the right environment to tap into the growth. We have the optimum material handling and control systems to create the right conditions. We have the ability to capture identity and data without manual intervention to ensure the right goods is delivered to the rigt person at the right location and we have reasonably developed supply chain execution systems that will ensure that we deliver as promised. The question is where do we go to from here? Do we continue to do business as is or do we aim for excellence. In this article, we look at the
Warehouse Operational metrics we need to develop to achieve warehouse excellence. We start developing metrics by first profiling the existing infrastructure, products, product flows, product constraints and systems place for collection of data. We take a serious look at the facility layout in terms of usable Sq. Feet, Height Material & Data Flow Diagrams. We need to understand the method we will use to move material within the warehouse - Lift Trucks, Pallet Jacks, Conveyor, AGVs, or other. We identify the storage locations - Bulk, Pallet Rack & Flow Rack, Bins/Shelving, AS/RS, Mini-Load, Carousels. We look at the product profiles and product constraints like Number of SKU’s, Classifications; e.g., Hazardous, ABC Percentages, Shelf Life, Lot & Date Codes, Serial Numbers, Seasonal Issues, etc. We move on to establishing activities in terms of receipts per hour each day - like trucks, railcar, other, orders, lines, items, pallets, cartons, rolls etc. we take a look at the number of picks per hour each day in terms of orders, lines, items, cartons, pallets, other, and the
SCMPr
May 2013
27
great care not to burden the system with a very large number of KPI’s. It is always safe to restrict the numbers to manageable levels. KPI’s are further classified as Internal KPI – more to do with the measurements of process performance within the warehouse, and are fully under the warehouse lead story management control. There are a few KPI’s which measure the supplier performance and some which measure customer processes. A healthy mix of all forms need to be developed.
From here on the process is very simple. For each number of shipments by trucks, rail, courier, other From here on the process is very simple. For each of the KPI’s the management decides to follow, the fir modes. We also establish the resources at the ware- of the KPI’s the management decides to follow, the fir needs the Receiving data that will be usedPickers, and the method calculation. In that addition to used the method, needs to of establish the data will be and the house to- establish Supervisory, Operators, the units Checkers, and the expected benchmarks or targets to of becalculation. decided. Due the absence of data method In to addition to the method, Packers, Replenishment Operators, Ship- need the units and the expected benchmarks or targets need ping Personnel, Inventory Control, Expeditors, Data collected from Indian warehouses, we can look to the developed world for what we come to to be decided. Due to the absence of data collected Entry / Indirect, and Other staff. acknowledge as the current best practices and benchmarks. Once we have the profiling done, we move on from Indian warehouses, we can look to the developed to establish the key performance indicators. One of world for what we come to acknowledge as the current the issues with performance indicators is that man- best practices and benchmarks. Once the firm has developed the metrics, the nest agers tend to go overboard with it. Managers should take great care not to burden the system with a very big challenge is to collect data. In India this will be large number of KPI’s. It is always safe to restrict a challenge. In the absence of a enterprise warehouse the numbers to manageable levels. KPI’s are fur- management system, the firm has no option but to ther classified as Internal KPI – more to do with engage in a tedious manual collection of data. the measurements of process performance within Once the data is in, we can use order and SKU acthe warehouse, and are fully under the warehouse tivity profiles to deploy or ‘slot’ inventory based upon management control. There are a few KPI’s which historical & anticipated volume like Improve Space measure the supplier performance and some which Utilization, Reduce Travel Times, Increase Pick Rates measure customer processes. A healthy mix of all & Throughput, Optimize Replenishment Activity, Reduce Damage, Improve Safety and Simplify Retail forms need to be developed. Restocking. And as a final step, the KPI’s can be used to calThe Few Key Parameters that Define Excellence culate the ROI for the investment required to put in n Profile & Measure Current Performance place a warehouse operational metrics program. n Establish target and performance metrics And as a parting thought, it is reckoned that 90% n Map Processes, Material & Data Flows of the warehouses in India do not have a WMS in n Define Trading Partner Needs place. In the absence of WMS, data collection can n Identify Gaps & Opportunities be a huge task prone to errors. Remember, the best n Define Structural & Functional Needs technology installed in operations with ill-conceived n Match Likely Costs & Benefits material flows & processes will only enable users to do n Put a Value on Potential Incremental Gains things badly - - - faster! 28 SCMPr
May 2013
28
Lead story
Impaact of E-Commerce on Warehouse The traditional format of sales has changed forever. In order to expand their market base, and reach their target segment, companies are using electronic mediums – internet, mobile and social media (which is different from the traditional e-space) to reach consumers. E-commerce, or more recently M-Commerce, is the fastest growing consumer connect channel and it requires a fast, flexible, and accurate order fulfillment methodology. E-commerce orders are characterized by the high volume of orders, the low number of items per outbound case, the fast order turn time, and the growing requirement for real time fulfillment visibility. Girish V S goes beyond the warehouse walls to see what this means to warehousing.
E
-Commerce, (which, for this article, includes mobile commerce) has emerged as a strong point of sales for companies. Global e-commerce turnover exceeded USD 1 Trillion in 2012 and is expected to grow at 25 per cent in 2013. And companies are rushing to go online as quickly as possible. And China, India and Indonesia are expected to see the fastest growth of e-commerce globally. Unlike in the store format, the seller need not have physical possession of goods which the buyer can touch, feel and take home. It involves a customer, who could be in any part of the world, go online, check out the products on offer, place an order and expect the order to reach her within a period which can be as low as a day–the famous “One Day Rush Orders” from Amazon. This phenomenal rush to go online is fundamentally changing the retail supply chain networks. We look at the changes to one part of that chain – the warehouse. Typically, an e-commerce aligned warehouse design to incorporate multi-level pick modules, automated sortation, and ever increasingly sophisticated Warehouse Control SCMPr
May 2013
29
lead story System (WCS) to Warehouse Management System (WMS) interfacing. The traditional fulfillment process which includes receiving, putaway/storage, picking, transport through the warehouse, sortation, value-added services, packing, and shipping—is a not a suitable option for handling the needs of e-commerce. E-commerce is all about your ability to pick, pack and ship small items – some as small as an ear ring to large equipments like treadmills to customers in far flung areas within tight delivery times. The expected fulfillment process might require delivery to customers—not weeks or even days, but typically within 24 to 48 hours. Speed, accuracy and efficiency are the buzzwords. In addition to this, the demands of continual stockkeeping unit (SKU) expansion add to the complexity of warehouse operations. Unlike traditional stores which can stock only a limited inventory, internet retailers support an ever-increasing selection of merchandise that typically includes fast-moving items and many very slow-moving items. How these SKUs are picked and handled can present two very different operations.
E-commerce fulfillment has four major challenges Large volume of very small orders Major variations in the order flow Delivery of the product to a private consumer who is not always home to receive the goods Large quantity of troublesome returned goods E-commerce is more a supply chain operation than a sales operation. From the moment a customer places an online order to the time it is received at the warehouse, picked, packed, and shipped, every step in the process must be handled efficiently, consistently, and cost-effectively. Unlike other formats, in e-commerce, the warehouse provides much of the customer experience. Simply delivering the goods is no longer an adequate mission for the fulfillment center—customer satisfaction has to be a critical priority. The typical ecommerce consumer expects a wide selection of SKU offerings, mobile or internet ordering capability, order accuracy, fast and free delivery, and free returns. We turn to the warehouse part of e-commerce. The first requirement of the warehouse is a Warehouse Management System, with a high speed broad band connectivity to receive the customer orders. Once the warehouse receives the order, the WMS has to check for availability of the stock. If the stock is not available, the system should generate an alert to the manager for alternate sourcing. Networked warehouses will be able to locate the SKU at whichever warehouse it is 30 SCMPr
May 2013
at and route the shipment from there. In some cases, the warehouse might have to co-ordinate with other warehouses to complete a shipment. For example, a laptop order may mean the warehouse might have to co-ordinate with a bag manufacturer and accessories manufacturer to complete the order. E-commerce fulfillment is basically a piece-pick operation, which is essentially a manual procedure. No doubt, right automation facilitates the minimization of manual efforts, resulting in increased accuracy, improved ergonomics, lower labor costs and worker travel time, fewer returns, and space saved by operating in a smaller footprint. This calls for a higher capital expenditure. The low margins mean that the warehouse will take a longer time for break even. To upset the calculations, the global trend that has emerged is that the sellers are reducing the period of their contract with the outsourced entities–from around 10 years to 3-4 years. To break even, the warehouse has to either boost volumes or increase pricing. The latter is not an option today. We take a look at the warehouse of Amazon–arguably the largest on-line retailer in world. The story of Amazon is mostly about warehousing and distribution. Amazon today operates 80 huge warehouses across the globe. During its initial years, Amazon started off with the principle that they would serve all their customers– wherever they are–from a centralized warehouse. But as business grew, so did the number of warehouses. Amazon deserves special mention for one simple reason–it follows a very unconventional storage system in its warehouses. And no–there are no robots on the Amazon warehouse floor–only a ocean of humans–who pick, pack and ship. While traditional warehouses follow a well defined storage plan–with every SKU allotted a specific storage place, Amazon uses what it calls “Chaotic Storage”. The Amazon experience is that by
One of the chaotic storage facility of Amazon Warehouse
30
lead story
A wide variety of product can be found located next each other in Amazon warehouses.
Amazon chaotic storage has many key advantages like: Flexibility, simplicity and optimization.
storing items randomly instead of categorically, the warehouse has a much better flow of material. Chaotic storage–also known as random storage–is simply a shelving system holding the products. In this aspect it is similar to the fix storage positions. What differentiates the chaotic storage system so special is the flow of material. The real advantage of chaotic storage is that it is significantly more flexible than conventional storage systems. If there are any changes in a product range, or new products come in, the company does not have to plan for more space. The prod-
ucts or their sales volumes do not need to be known or planned in advance if they’re simply being stored at random! Another advantage is that the free space is better utilized in chaotic storage system. Unlike a conventional system, where free space may go unused for quite a while because stock is low or there are not enough products, in the absence of fixed positions, available shelf space is always being used. For Amazon, it is also a major time-saver. The Amazon warehouse, which has millions of different SKUs to keep track of, would take a significant amount of time just to stock the goods in an organized fashion– that is even before an order comes in. The staff can cover more ground using Amazon’s system, and they don’t need to spend time sorting items by product or shipping volume. Chaotic storage has a very simple process flow. As the goods come in, the staff places it in the nearest empty space. The space and the product both have a bar code. The staff simply records both the place and the stock bar code using a hand held reader. When an order comes in, the WMS prepares a pick list, directing the staff to the exact location of the product. And as the staff picks it up, they scan it so that the database can be updated. Chaotic Storage is particularly interesting for warehouses handling a large number of items with small stock each–essentially e-commerce. SCMPr
May 2013
31
Lean Techniques for Warehousing
32 SCMPr
May 2013
lead story
Lean is a practice that considers the use of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. The core idea of Lean Technique is to maximize customer value while minimizing waste. Simply put, lean means creating more value for customers with fewer resources. An interesting application of the Lean Technique is in warehousing operations. Warehouse improvement requires optimizing material flow, order picking, replenishment, and dock operations. In this article, we take a look at how warehouse operations can be improved using lean concepts and techniques. Although the traditional lean techniques maybe difficult to apply, concepts of improving material flow and eliminating waste can be used to make significant improvement in warehouse lead time. Girish V S takes a look at the application of Lean Techniques in Warehousing.
L
ean is one of the most widely accepted business strategies for finding efficiencies and profits for an organization. Lean is a systematic approach to identify and eliminate waste (non-value-added activities) in every area of operations including customer relations, production flow, maintenance, quality, and management, through continuous improvement of existing processes. However, lean practitioners believe that warehouse and lean techniques are two mutually exclusive terms. But if we look at warehousing as a series of processes that deliver value to the customer, what a warehouse does is to allow a company to ensure on-time delivery even with variations in customer demand. The key to warehouse performance is to reduce the non-value added steps as much as possible and improve velocity and flow of goods. Lean is like a toolbox full of tools and techniques, where one selects the right technique or method to improve what needs improving. Lean is a philosophy of production that emphasizes the minimization of the amount of all resources used, coupled with continuous improvement and customer satisfaction. Over the past few years production areas have been upgraded. But warehousing activities have been largely left out. This is also reflects the state of warehousing in India so far – one of abject neglect. With shorter time to market and fickle customer demands, companies are now experiencing problems with the warehouse and distribution areas which are a drag on the production and sales functions as it fails to keep pace with the product as it is received from various processing areas. Space utilization, material handling, and data collection are just some of the challenges that arise. We looked at them in the previous article.
Transforming a warehouse into a Lean operation does not happen overnight. This evolution requires an enormous change of the organizational culture and buy-in throughout the enterprise. To start the implementation of lean concepts in the warehouse, one of the most useful tools is the value stream map. One definition of the value stream, according to J Shook and M Rother, is the set of all specific actions, both value added and non-value added, that are needed to take a product through the information and production flows of a manufacturing operation. The value stream map follows the production path from beginning to end and shows a visual representation of every process in the material and information flows. Most times the warehouse shows up on a value stream map as simply an inventory triangle and shipping. This makes it difficult to evaluate the waste that is occurring within the warehouse. It is necessary to show the process within the warehouse including operations such as receiving, palletizing, putaway, order picking, order staging and
The benefits of Lean techniques n Define value from the perspective of the
customer – What customers are willing to pay for. the value streams (the steps that deliver value) in activities used to make a product or provide a service n Flow–understand the process and clear any obstacles that don’t add value–Organizing the value steam to be continuous n Pull–initiate work only when requested by the customer n Perfection–continuously refine the process to improve efficiency, cycle time, costs and quality n Identify
SCMPr
May 2013
33
33
lead story Simplified Warehouse Value Stream Map Orders
Suppliers
Orders Customers
Production and Inventory control Orders
Schedules
Production
Warehousing
Shipping
Lead Time preparation, truck loading, and shipping. A concept warehouse value stream map is shown in Figure 1. It is easier to create a Value Stream Map for each product separately, to keep things tidy. After the current state value stream map is created, improvements can be easily developed to eliminate extra material handling, excessive travel time, and time spent looking for products. Various lean improvement techniques such as material flow analysis, quality improvement, and application of the 5Ss can be used. Studies have shown that warehouse lead time, order picking time, and material handling can be reduced by 50% using lean concepts. The current state value stream map shows the current warehouse operations and is the foundation for the future state changes. We need to identify the wasteful processes that increase lead time and processing time, so that we can eliminate wasteful processes. Using the current value stream map, we need to develop the proposed value stream map that will eliminate the waste as far as possible. The focus is on reducing wasteful processes by using lean techniques. That done, the next step is to develop the changed process map including the modifications. By applying the Lean concepts in warehouses, companies can reap a number of benefits across multiple 34 SCMPr
May 2013
functions such as: warehouse space consumed, annual inventory turns, orders shipped complete and on time, distribution center processing velocity, handling time, etc. Warehouses can also apply the ‘touch-only-once’ principle to their operations to reduce wasted motion and handling. Any time a worker touches a product just to move it, the cost of the product increases. The best way to start a Lean initiative is to implement a test or pilot project that will generate useful data to show improvements for the buy in by the top management. Once the initial positive results are there for people to see, the next logical step is to start selling the Lean concept to the entire organization. One thing we need to keep in mind is that the most important Lean principal has nothing to do with the processes within the warehouse. Lean is an attitude that instills total commitment to continuous improvement, with never ending focus on the elimination of non-value adding activities. It calls for a complete change in mindset across the company. Another myth about Lean Technique is that it will lead to a reduction in head count. Lower head count per unit of output can be a consequence of applying Lean principles. Many managers believe that reducing head count will result in a Lean company. That’s just not true.
n practice
n trends
n knowledge
n white paper
n human resource
Using
Management to Improve Horizontal Collaboration Among Grocery Retailers At a time when businesses across the globe are faced with increasing transportation costs, volatile demand and a fast changing customer base, supply management organizations are exploring new and unique ways to use collaboration in their supply chains. One such effort is turning traditional vertical collaboration strategies on their side and may change the way organizations view their supply chain - and their competitors. Referred to as horizontal collaboration, this approach is characterized by manufacturers sharing supply chain assets for mutual benefits. It is collaboration across rather than along the supply chain. Recently, a trend towards horizontal collaboration in the supply chain has been gaining ground. Collaborative supply chains promise to improve sustainability and reduce transportation costs at the same time. We review a paper by Martin Hingely, Adam Lindgreen, David Grant and Charles Kane.
A research paper by Martin Hingley, University of Lincoln, UK, Adam Lindgreen; University of Cardiff and ISEG School of Management, Cardiff, UK: David B Grant; Heriot-Watt University, Edinburg, UK and Charles Kane; Harper Adams University college, Newport, UK. SCMPr
May 2013
35
Academic Advocacy
T
here is a paucity of research on horizontal collaboration among grocery retailers, 3PL provider. This paper seeks to investigate the benefits of and barriers to the use of 4PL management as a catalyst for horizontal collaboration. The practical implications of the research–This paper shows that in spite of the requirement for a deeper integration into the subjects supply chain network, and the fact that 4PL model could apply to diverse sectors and circumstances, there are barriers to such integration. These barriers are created by power plays among lead stakeholders that inhibit horizontal collaboration regardless of cost or other benefits. This paper considers several characteristics and issues related to horizontal collaboration implementation through an exploratory investigation of retailers, suppliers and logistics service providers in the UK grocery retailing sector, focusing specifically on the role of 4PL providers. This study identifies a consensus of opinion from the participants that the time is right for changes in current Physical Distribution Management structures associated with grocery and wider retail supply chains in the UK. The participants agreed certain elements would enhance the current situation such as the potential for increased asset utilization and the marketability of a more environmentally sound approach to distribution management. Other less tangible benefits included the reputation benefits of being associated with such innovations. These findings appear in-line with literature that has promoted the benefits of innovation and horizontal collaboration in retail supply chains. 4PL relies on an outsourcing provider to neutrally manage the 36 SCMPr
May 2013
entire logistics process. Unlike 3PL service provision 4PL combines process, technology and management. All parties in a 4PL arrangement contribute equity and distribution assets including systems capability, strategy development and process re-engineering skills. PDM staff relocate to the new firm which is treated by those involved as s strategic rather than tactical partner and supply chain orchestrator. The focal firm uses its knowledge to manage and integrate the supply chain and turns to specialist providers of logistics services if existing expertise or capacity is not available. However, only suppliers and LSPs showed the necessary willingness to participate in 4PL inno-
tion that it is difficult to envisage any situation where they would collaborate so much that they shared PDM. As such, retailers as gatekeepers and channel leaders are motivated more by safeguards against competition than by collaborative savings. We believe the adapted typology offers a useful operational process for 4PL, but the lack of retailer support was disappointing which prompted us to develop a future structure for PDM systems using 3PL and 4PL in retail. A 4PL would still provide benefits for suppliers but either it or traditional 3PL providers would need to offer the usual direct and unique deliveries to retailers–with all the attendant inefficiencies in operations,
It is hard to see how sufficient returns might be realized with retailers’ emphasis on supply chain secrecy. vations including horizontal collaboration for increased efficiencies and customer service and reduced costs. We found a distinct lack of retailer willingness to sustain a 4PL operation and horizontal collaboration. This reticence likely relates to the power or control issues identified by earlier researchers, and their effect on the retailersupplier dynamic continues to be detrimental. However, retailers have reached their current positions through significant horizontal mergers and acquisitions rather than more friendly collaboration and may have arrived at a point of horizontal saturation, especially with regard to competition law. Thus, PDM means far more to retailers than cost efficiency, as verified by the LSPs. Retailers place such a value on service levels and protecting sensitive sales informa-
costs and the environment associated with in this final link in the grocery supply chain. The issue of horizontal collaboration in grocery and other retail supply chains has not been sufficiently addressed in prior research. Previous studies have focused on potential efficiency gains from 4PL service provision but have not seriously considered a retailer’s competitive power play. It is hard to see how sufficient returns might be realized with retailers’ emphasis on supply chain secrecy. We expected much more openness and enthusiasm for 4PL and horizontal collaboration; in this sense our findings are a little disappointing. Nevertheless, this study confirms a serious issue: how can retailers get comfortable with the essence of 4PL so that they can achieve any available benefits. 36
Academic Advocacy Regarding our proposed typology, the two dimensions of collaboration intensity and complexity of collaborative distribution are supported by our study participants. The more intense and complex the distribution and collaboration operations become, the more the 4PL must specialize in terms of assets and technology, particularly information flow assisted by techniques such as RFID. If they do not, the benefits of superior performance will not be achieved.
Managerial implications This study has identified the scope for greater horizontal collaboration although it may occur at the supplier rather than the retailer level. This potential has been tentatively investigated by one of the suppliers in our study but the issue demands a more vigorous exploration in that this avenue offers the potential advantage of increasing distribution asset utilization without endangering retailer integrity and service levels, as horizontal collaboration between retailers would. The LSPs highlighted significant PDM horizontal collaborations between major manufacturers, which
It was believed that 4PL would negatively influence the retailer–supplier dynamic but simultaneously would provide key potential benefits. indicate that such firms have very quickly come to appreciate the cost savings and other benefits gained from collaboration. Those involved in the grocery supply chain should not expect retailers to provide all of the cost management initiative because their primary concern appears to be their own welfare. As the economic environment tightens consumers will expect more from retailers in terms of competitive pricing and this pressure will be passed on to suppliers. To remain competitive, suppliers should turn to greater horizontal collaboration which also represents an opportunity for smaller producers to improve their cost efficiency. The current economic environment means that all actors in the food supply chain experience increasing pressure to manage costs
more efficiently. The attitudes summarized herein suggest that external pressure is not yet sufficient to encourage close retailer collaboration. Its effects should not be completely discounted though because external pressure may still offer a means to manage cost effectively. Large logistics service providers can establish 4PL management but the significant investment required to do so is a deterrent. It was believed that 4PL would negatively influence the retailer–supplier dynamic but simultaneously would provide key potential benefits. Retaining supply chain control means more to retailers than cost efficiencies realized through horizontal collaboration. The original paper can be accessed at www.emeraldinsight.com/13598546.htm
www.scmp.in ...think supply chain Industry Portal for the Supply Chain Professional SCMPr May 2013 37
column
Challenges in Supply Chain Today Supply Chain has become critical to business success and has been discussed in board room. Anil Sathe discusses the significant challenges facing supply chain management which will have a substantial impact on strategic decisions in many businesses.
O
Anil S. Sathe Senior General Manager, Supply Chain (Products Business), Blue Star.
38 SCMPr
May 2013
ne often wonders about the business objective and what organizations should strive for. “Sustainable Profitable Growth� is what it can be summed up as. These 3 words together, pack so much of meaning that virtually all that we do as individual professionals or as a business entity can be traced back to this simple objective. Many organizations are formed every day and few last for beyond 50 years. Obviously these are the companies that do something different than the others. This is most certainly true in Supply Chain domain as well. Sustainable procurement is a way that organizations can practice to benefit both, environment and economy.
As a Supply Chain professional for last 3 decades I have come across many organizations and seen many transitions in different industry. Through this column every month I would share with you my thoughts and experiences on various areas of SCM. To begin the conversation, I am starting with challenges that we face today.
Supply Chain Criticality Modern Supply Chain has become extended, significantly critical as compared to the days gone by. Traditional supply chains of the past were vertical setup, with a company owning its supply base. Henry Ford I, for instance, owned everything: the steel mills, the mahogany forest, the rubber plantation
column
Supply chains must periodically be assessed and redesigned in response to market changes, including new product launches, global sourcing, new acquisitions, credit availability, the need to protect intellectual property, and the ability to maintain asset and shipment security.
and he controlled the entire supply chain. Modern Supply Chains of today looks totally different. Most of us outsource to third party, so to focus on our core competencies. We are now very reliant upon suppliers who could be on the other side of the globe. The focus is to control and have visibility on your supply chain and not own it. For the foreseeable future, most of our transportation will require petroleum based products to operate. With higher energy cost, the cost of moving things greater distances, is going to become a limitation on our supply arrangements. The conclusion must be that there will be a significant reshaping of the supply chain architecture, because the centre of gravity of supply chains in some cases is moving dramatically and the forces shaping it are powerful. Off course, such analysis and restructuring is an ongoing requirement for effective supply chain management. Following are some of the most critical /common challenges supply chain management is facing today.
Cost control Supply chain operating costs are under pressure today from rising freight prices, more global customers, technology upgrades, rising labor rates, expanding healthcare costs, new regulatory demands and rising commodity prices. Historically, decision making and performance management have been based on standard costs. These costs are usually provided by the Finance organization and are updated infrequently (i.e., annually or when a new product is introduced). The challenge to effective management is that the actual costs of products, as delivered to individual customers, are rarely “standard.” A better measure is total landed cost, which incorporates shipping and distribution costs. But these costs themselves are often based on standards or averages, despite wide swings in actual costs in response to the supply of, and demand for, transport, the cost of bunker fuel, or other factors. Future will see a shift to greater use of dynamic costing, based on real-time visibility into granular information on prod-
uct production, transportation, and distribution costs. When companies can see the actual costs of delivering specific products to particular customers building in real time, they will be well-positioned to make the customer-specific tactical decisions and to enable more profitable segmentation strategies.
Planning and Risk Management Most companies are now engaged in manufacturing products in different parts of the world. And this is not restricted to manufacturing but the whole chain from Design to customers. For example some product is designed in one part of the world and manufactured in other. The material is sourced globally for the final product. So now you have multiple companies attempting to collaborate to create a product; operating in different parts of the world, on multiple systems and technology, where there is seldom similarity in languages or in weather conditions. In such environment, Supply chains must periodically be assessed and redesigned in response to market changes, including new product launches, global sourcing, new acquisitions, credit availability, the need to protect intellectual property, and the ability to maintain asset and shipment security. Hence there is higher need for Supply Chain Risk Management (SCRM), where risk is to be identified and quantified and the mitigation process in place for each risk identified. While we all consider these issues in our decision-making process we need to have structured processes and metrics for assessing, controlling, and mitigating such risks. Most risk management modeling today involves offline contingency planning based on statistical likelihood of occurrence data. Over the next few years we will see significant movement away from the relatively static realm of risk management theory towards the “real-world dynamism” of today’s integrated supply chain business models. Specifically, the next phase of risk management will operationalize risk identification and reduce the time it takes to respond intelligently to disruptions across the network. By incorporating contingency SCMPr
May 2013
39
39
column plans into dynamic operating models with network monitoring, supply chain managers will be able to make better decisions within the execution window. Risk management tools will move beyond identifying weak links and gaining up responses to hypothetical problems to providing the information and communication platform needed to assess and manage situations as they occur— mitigating downside when the inevitable hits the fan.
Supplier/partner relationship management
A large percentage of companies have yet to leverage the significant benefits that come into play when gaining supply chain visibility. Getting there is goal number one because the benefits are real, measurable and significant. 40 SCMPr
May 2013
Different organizations, even different departments within the same organization, can have different methods for measuring and communicating performance expectations and results. Trust begins when managers let go of internal biases and make a conscious choice to follow mutually agreed upon standards to better understand current performance and opportunities for improvement. Should say when this is done, what it’s supposed to, the supply chain function is collaborative – people (and companies) working together to meet the needs of their customers. It’s also profitability minded, which doesn’t always “play nicely” with real collaboration across enterprises. But the ability to be both collaborative and profitable will certainly take center stage as we move ahead. First is collaborative problem solving. Over the next few years, partner communities will create virtual war rooms where teams can solve problems quickly and collaboratively. They’ll also create online repositories to document processes and decisions for future reference and organizational learning. Second, demand sensing and sentiment analysis will move upstream from Marketing to Supply Chain, generating earlier awareness of trends (either positive or negative) for better preparedness and responsiveness.
Supply chain visibility For many of our customers, this is the fundamental building block for driving supply chain maturity. Once you have that ability, companies can take up things like cost-toserve analysis, cost-to-serve optimization,
risk identification, risk management, response management and supply chain segmentation. These are things on any company’s wish list, to do to improve their profitability and help them deal with risk in the global supply chain. In a global environment, you need to have the fundamental building block of supply chain visibility in place before you can address all these things. For any new product launched there is fluctuation in demand. Over and above shrinking product lifecycles and rate of obsolescence is high. These issues also present new challenges. Changes in regulatory environment further escalate the complexity of the situation. Addressing these challenges adequately requires visibility across the entire supply chain. A large percentage of companies have yet to leverage the significant benefits that come into play when gaining supply chain visibility. Getting there is goal number one because the benefits are real, measurable and significant.
Talent – acquisition and retention As experienced supply chain managers retire and organizations scale up to meet growing demand in developing markets, talent acquisition, training, and development is becoming increasingly important. Supply chain leaders need a thorough understanding of the key competencies required for supply chain management roles, specific job qualifications, methods for developing future talent and leaders, and the ability to efficiently source specific skill sets. There are many challenges in this area starting from what gets addressed today in education curriculum at graduate level. We need to have a very serious look at how corporate entities support this curriculum development and also participate effectively with ongoing interactions. Second most important aspect is induction and training process. The companies must address specific areas in Supply chain where a new entrant will have ready information on generic requirements as well as industry specific issues that must get addressed. Also since today’s SCM manager
column interact with partners globally across the chain, he must be able to give right messages and reflect the company vision. Lastly having groomed right talent within the organization, it is critical that organization structure recognizes their importance and they must be made part of decision making process at the highest level like marketing and finance.
Ethical practices This is one of the most important aspects of our profession and can tarnish image of company we work for and also completely spoil relations with our partners /vendors. Many companies today have policies on code of conduct and also effective way to administer the policies. However the threat is very real considering that external environment today is not supportive with lot of issues being thrown up every day challenging social and moral fabric of our society. Obviously for all the members of the organisation particularly so in case of Supply chain professionals, it is of paramount importance to have fairness and transparency in decision making process. We must get used to greater degree of scrutiny of our intentions and actions to ensure that we protect interest of our organisation as well as make our supplier /service providers know that only costs that they will incur will be what is covered in contract documents. This should also cover aspects such as unfair treatment to female employees, avoidance of child labour etc.
All these impact supply chain severely depending on the industry we are working in and will have to be given necessary importance in taking decisions.
Green Procurement Green procurement offers the potential to reduce environmental impacts and risks, while delivering economical benefits to the organizations. INSEAD Business School has proven through its research that, Sustainable Procurement can yield positive economical benefits for companies in terms of “Risk Management”, “Cost Reduction” and “Revenue Growth.” By sourcing environment-friendly material or parts, organizations preempt consumer and environmental risks during usage and disposal stages and ensures quality living. As consumers are becoming sensitive to
environment, companies can benefit from increased sales and revenue by offering products that are made with eco-friendly materials or parts. On the other hand, by controlling the use of hazardous waste and through recycling, costs of material, logistics, and disposal can be saved significantly. Purchase organizations, as part of their procurement & quality policy should include green standards/criteria that guide buyers to source materials from suppliers whose processes are driven by environmental standards. Many global corporations have already made huge progress in this area and some of the illustrative examples are: Toyota Motor Corporation, through the company-wide implementation of its Earth Charter strives to work more closely with its suppliers and promotes green procurement in order reduce environmental impact of vehicle parts as well as raw and supplementary materials at a global scale. Sony sources its parts and materials for its products solely from suppliers that have been certified as Green Partners. This green procurement policy has also been extended in the purchase of its office products & supplies and ensures that only “eco” mark products are bought.
Other issues Some of the recent challenges have been in the areas of end-of-life treatment for the products being supplied, issues related to data security due to electronic media across all applications of data transfers, patent issues etc. All these impact supply chain severely depending on the industry we are working in and will have to be given necessary importance in taking decisions.
A key message This is a first article and I thought of sharing with you my thoughts on what I feel is an agenda for all of us. I am sure each one of you is handling these challenges and more. Would be very happy to receive all your comments /suggestions/feedback on this article and also on topics we should cover in months to come. Do write back to me on feedback_SCMexcellence@yahoo.com. SCMPr
May 2013
41
lsp focus
Keeping the Wheels of Trade Moving
We caught up with Milind Shahane, the Executive Director and CEO of Drive India Enterprise Solutions Limited for an interesting conversation on the potential of logistics sector and its growth drivers. We bring you edited excerpts from the interview. What are the current trends in global logistics?
Global trade is growing and is likely to continue to grow further as the world economy integrates going forward. As this happens, and global supply chain will become more complex. Take theexample of automobile industry - 20 to 30percent of autocomponents are sourced from the different parts of the world including India. It is impera42 SCMPr
May 2013
tive for the company to choose wisely about sourcing geographies and partners and how they can bring in the components at a reasonable logistics cost. Who is the industry looking forward to for providing a solution to this? Is it done by the consigner or consignee or it is left to the intermediaries to take care of the whole complexity?
lsp focus Actually the solutions have to come from all stakeholders and it has to come in a co-ordinated manner. The initiative and ownership,however, will be with the buying organization. There are various service providers who can manage a part of the supply chainand there are integrators, like 3PL providers, who can also be service providers on an outsourced model. The more closely the buying organization works with these service providers, the higher will be the value addition in terms of efficiency. This includes co-ordination with shipping or air cargo companies, various agencies involved in documentation or clearing and storage. Here too, there are a number of possibilities in terms of how you store, where you store, what the kind of network you design. These need to be co-ordinated well if we want to optimize the Supply Chain. One of the crucial things is seamless flow of information across the network. My understanding is that the flow is not seamless. Are you seeing any efforts been made by the industry to come together and evolve some kind of framework?
In some parts of the developed world there have been efforts to develop a common standard for data exchange between various service providers, but I think India has still not moved in that direction. I have been part of some discussions where this topic did come up as many industry leaders do feel the need for a common interface for seamlessly exchanging the information and data. I believe that while there may be different software packages, but the data exchange should be seamless on a unified platform.
DIESL has very strong operations in North East. We are present in each and every state in North East. Recently we conducted a seminar in Guwahati, where many of the industry speakers voiced the opinion that this connectivity, once it opens up, will have a huge impact on Logistics sector.
Are you looking at the global trends of sustainability and green supply chain? Do you see any of those impacts in India?
I think the impact will come, if not today, then definitely in the near future. In Green it is mainly the climate change or the environmental degradation which should be avoided by every industry, so too by logistics. Awareness is slowly building up in terms of how logistics can contribute to these green initiatives. For example in DIESL, we look at how we can avoid electricity usage as much as possible during the day in our warehouses. There are simple ways of doing it by putting skylights, which will allow daylight to come in and reduce energy consumption. Similarly in transportation,we opt for CNG vehicles or more fuel efficient vehicles.This can be adopted as a practice by the industry, but globally, there is still no consensus in terms of emission reduction. Today it is done voluntarily by each company or each organization. There is a road which is connecting Thailand, Myanmar to India which is going to change the way freight moves within the region. What is the kind of impact this would have on Indian freight or Indian Logistics?
I think the impact would be great for the eastern region and in particular for the north-eastern region. It will have a huge impact in terms of potential trade for India to these countries and will benefit that region directly since this will be the route it is going to pass through. In fact, DIESL has very strong operations in North East. We are present in each and every state in North East. Recently we conducted a seminar in Guwahati, where many of the industry speakers voiced the opinion that this connectivity, once it opens up, will have a huge impact on Logistics sector. Are you seeing similar interest by other 3PL players in moving in to these regions?
No, there are not enough 3PL service providers in the North East. The level of representation there is low, but yes some companies are definitely looking at this because of the two developments - the road connection to ASEAN and also the rail connection. Both these developments will have a significant impact on movement of material. What caused you to focus on the North-East when rest of India is not looking at that region?
DIESL has a zonal structure for operations.. For our eastern zone operations, north east was critical, and because the region was under served by the other logistics companies, it became a natural opportunity for us. DIESL started expanding base there and we SCMPr
May 2013
43
43
lsp focus
Information of the shipment arrival, clearing and delivery can be given in one short message, rather than one message when it has arrived and another when it is cleared, somebody else telling him when it is on the road and when it will be delivered. kept getting additional business. Moreover, DIESL started out as a logistics arm for Tata Tele Services Ltd (TTSL). TTSL has a big presence in North East, and we had to set up the network for them. Both these triggered the move to North East. What other geographic or trade lines do you want to serve?
The areas which are under represented in terms of distribution,TIER 2 and TIER 3 cities, are growing fast in India. These areas are under represented in terms of trade lines serving them. We want to focus on creating a similar presence here aswe did innorth east. To give you an example; it would be a Jabalpur, Indore, Bhopal belt in Madhya Pradesh. Or you take the eastern regions of Ranchi, Patna and Jamshedpur or Chattisgarh and Raipur. What region do you think is going to boost your traffic and revenue?
We see a fairly even distribution in terms of where we will achieve growth, because of our zone wise setup. We are focussing on the entire country. West and South are more developed when compared to East. We see that East would have higher potential for growth which we spoke about, but the growth is on a smaller base;we may grow faster, but business volume that we do there might still be lower than other zones like West and South which are more developed, where the growth is slower but the volume and values are much higher. How are you trying to protect your bottom line?
I agree that logistics is becoming a commoditised service, where it is increasingly difficult to spot 44 SCMPr
May 2013
the differentiation between one organization and the other. The difference would have to come in terms of value addition to the customer; this could be greater reliability or consistent service. It is not enough to have reliability and consistent service 80% of time; it is important to do it right 99% of time. The second area where we are focusing is people skills and knowledge - this is a people driven industry where processes and systems are important, but the person executing makes all the difference. If you are able to improve people capability at ground level through training, they will deliver a better service to the customer. The third area of focus is improving information flow. We are working on making it faster and integrated; such that data from different sources can be integrated and shared with the customer. The customer may get the information in bits and pieces and at different time periods, which reduces its value. For example, information of the shipment arrival, clearing and delivery can be given in one short message, rather than one message when it has arrived and another when it is cleared , somebody else telling him when it is on the road and when it will be delivered. That sort of information flow is something we are looking at. Are you also looking at International Expansion?
At this stage we don’t have any plans for the international market. There are large untapped opportunities in India itself. We would like to first become strong in the domestic market before venturing outside. As you know, TATA group today is actually expanding very fast intheinternational arena. Fromthe group side there is encouragement to move out to other markets but it is more of a longer term plan. And whenever we move out, the first likelihood will be the African market because of the two reasons, one is that trade is growing between India and Africa, and second, TATA group presence is very strong in that region. And the final question; what is your outlook for the current year?
I think the outlook for the logistics sector per se this financial year is better than the previous year. Last year was very difficult time and environment for operating. There are two reasons for this optimistic view.Global economy as well as the Indian economy is improving; while last year the GDP growth went down to as much as 5.2%, the estimate this year is around 6.2% . That 1% growth rate translates in to huge growth for the logistics Industry. Secondly, as the business sentiments improve there will more expansion in terms of projects which companies will take up, which had been put on hold whole of last year.
Pharma Supply Chain Summit 2013
the
Unlocking Potential for
Higher Growth
14TH
The Indian Pharma industry today is in the midst of unprecedented growth with companies facedbywith multiple varying Engage and get exposure to the strategies adopted Supply Chain options Professionals and from industry experts. going for new molecule development, partnering with innovators DATE Paper presentations, panel discussions, freewheeling sections, debates etc by Pharma Supply Chain stake for marketing rights to capturing new markets with their own, and holders. A high networking opportunity or the Pharma supply chain decison makers to interact with the JUNE 2013 existing formulations.
Industry Experts and Peers.
TIMING
This scenario brings a new and enhanced focus on the Supply
VENUE
before efficiencies. + Strategies for Optimization
Focus 9:30 am to 5:00 Executive pm Partner Chain – forcing to explore andSummit deliver consistent and never – T H E LA L I T MUMBAI
+ Drivers in the Pharmaceutical Supplyusers Chainand service Pharma Supply Chain Summit 2013 brings together + and Managing Temperature Controlled Supply Chain providers to discuss deliberate the challenges and opportunities + Strategic and Design Issues In Pharma Supply Chain
Engage and get exposure to the strategies adapted by supply chain + Skill set challenges professional and industry experts Associate Partners
+ Technology Application in Supply Chain
Summit Focus
Strategies for Optimization Pharmaceutical Supply Chain
Supply Chain VisibilityDateDrivers in the Strategic and Design in Pharma Supply Chain 14th Issues June 2013
Managing Temperature Controlled Supply Chain
Organised By:
Associate Partner: Technology Partner
Associate Sponsor:
Technology & Skill Set Venue
Knowledge Partner: The Lalit, MumbaiMedia Partner:
Timing
9.00 am to 5.00 pm
FOR DELEGATE REGISTRATION PLEASE WRITE TO: RASHID.IQBAL @ SCMP.IN OR CALL US ON 022- 60020121/ 122
A H I G H N E T W O R K I N G O P P O RT U N I TY TO I N T E RA CTFor W Idelegate T H T H E registration D E C I S I O Nplease M A K Ewrite R S to: rubina.patel@scmp.in or call us on 022- 60020121/ 122 Knowledge Partner
Organised by
n practice
n trends
n knowledge
n white paper
n human resource
Changing The Game
How Training Can Boost Your Supply Chain and Logistics workforce
46 SCMPr
May 2013
talent
Being competitive in a global environment is no longer just about attracting the right talent, we must invest in training and development, to ensure we stay ahead of the demand curve if we expect to drive our supply chains to best of bred�, writes Darryl Judd.
I
n recent years the emergence of Logistics and Supply Chain as a key driver in enabling organizational success has been well documented. Logistics and Supply Chain Leaders are now represented at a Board level and their focus has very much expanded from the limited scope of adding value by cost cutting to a more dynamic model, in which expanded models drive business strategy by offering new ways to increase services, product delivery and hence provide competitive advantage. This new approach has overhauled the Logistics and Supply Chain industry in new positive directions. Big players such as Walmart are investing heavily in their logistics, purchasing and supply chain functions as a way of staying on top of their competitors and controlling their markets. As a result there has been a lag in a lot of companies who do not have the same clout. The question posed by scenario is how can these companies ensure that they can keep up and catch up so that their businesses are at the forefront of best practice in line with their competitors? The answer is to focus on a holistic approach to staff development and training in Logistics and Supply Chain. Going back to the Walmart example, they have partnered with Accenture to create a 6 to 12 month program that finishes in a four-hour exam known as the Supply Chain Academy. Unilever has placed a similar investment in their people’s skills with an online training system, which offers learning programs in more than 20 languages to nearly 130,000 employees in over 100 countries offering around 7,600 e-learning modules. As a result both Walmart and Unilever have become employers of choice as they have a reputation for being the best in their respective fields. Learning programs are closely linked with functional role outcomes and therefore business outcomes, so there is an easily identifiable link between training and business success. They have used training to leveraging their logistic systems and practices, which in turn has improved their competitive advantage. For example, both companies have trained their staff to use state of the art software that covers their supply chain, procurement and transport areas. Obviously not every business has the financial scope to structure similar elaborate feats of learning. However some of the best companies today realize that continuous learning and development is key to organizational success. Therefore a training strategy that is underpinned by best practice in supply chain and logistics are tailored to meet individual business requirements and unique strategy objectives is imperative. SCMPr
May 2013
47
talent According to L.R Sridhar, Managing Director for specialised logistics training firm, Mile Academy and the head of Logistics Executive India, training has become an imperative for supply chain and logistics organisations looking for a competitive edge. “Our clients who have traditionally used Logistics Executive to source talent, are now asking us to take off the shelf supply chain training programs and personalized these for their local environments in order to be more globally ready and to retain staff” said Mr Sridhar.
“Clients who have traditionally used Logistics Executive to source talent, are now asking us to take off the shelf supply chain training programs and personalized these for their local environments in order to be more globally ready and to retain staff”. As a result of this upward swing in demand for specialization, Mr Sridhar added that they have had to partner with internationally leading universities to design a full suite of programs from ground floor basics like inventory management to MBA certified programs specialising in Supply Chain. In reviewing best practices training standards that should be followed in the supply chain and logistics industry,some of the most effective learning and development programs today include some basic principles. Training and development programs need to be closely finessed with the organization’s overall stra48 SCMPr
May 2013
tegic goals. Trainers need to work closely with their clients to achieve this to ensure that the designed and implemented programs help to achieve business success by overcoming an area of improvement. The trainers should align the learning objectives and business objectives to make the training more relevant. This process is enabled in the delivery of supply chain and logistics if trainers have had direct first hand functional experience in the industry as well as an understanding of the first hand commercial pressures, market intricacies and the deep learning’s gained by own experience and prior learning . There also needs to be a clearly defined link between training programs and the value that they offer in the long term or the short term. Professional trainers should clearly outline how the training initiatives help an organization fully achieve its goals. The timeframes should be identified at the beginning, and a re-evaluation of the programs should be conducted on a regular basis. Training programs should be supported by key strategies, systems, structures, policies and practices.As in the case of both Walmart and Unilever, training is linked to company values and culture and directly supported by organizational structures. This reinforces established boundaries and supports the desired results. Of course training also needs to be flexible and innovative. Not all companies can afford nor require a formal learning academy. However there is benefits of trainers who have key industry knowledge who can identify and utilize different learning mediums to reinforce outcomes and ensure that people get the right skills at the right time, in the right way and at the right cost. Some of the best programs enable the employees to maximize
their potential through self-directed training and development. By identifying their own needs, creating individual learning plans and seeking learning opportunities, employees are encouraged to take responsibility for learning and apply the learned concepts at work. By experimenting and learning by doing, employees may find themselves to be more effective at work. This can also lead to a more successful work culture as employees show greater initiative and creativity in meeting business challenges. Many trainers recognize that learning is built around action rather than theory. Training best practices can vary depending upon the specific situation, culture and maturity of each organization. However, the best trainers ensure that they are well aware of the training needs before implementing any initiative. The best trainers in Supply Chain and Logistics ideally have a basis of understanding that is derived from first hand experience in the industry. They understand the intricate pull and push of market forces and the deep rigor and complex theory required to meet the training needs of a challenging Supply Chain and Logistics market place. There is no doubt that as the Supply Chain and Logistics sector grows, the success in this critical industry will only be achieved through an ongoing process of self-improvement and continuous learning. It is the investment in tailored training programs that will most ensure that organisations are able to have the right talent to meet the changing rigors defined by best industry standards. Darryl Judd
COO, Logistics Executive darrylj@logisticsexecutve.com
Organised by
Media Partner
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
Leading provider of enterprise solutions in the Microsoft Cloud
Cargo
Fleet
People
Economical Low initial capital Unmatched value Quick RoI
The only TMS that meets all transportation requirements - cargo, people, fleet
Scalable Simplify your Supply Chain Execution with a cutting edge, cost effective Transportation Planning Engine.
Cargo | People | Fleet
The fastest, most advanced planning engine for India
Advanced Optimization The fastest, most advanced planning engine for India
Built for Cloud. Built on Cloud.
Responsive
Intuitive
Quick ROI Pay per use Unmatched value
Rapid Deployment
Easy to Use
Rapid deployment allows software to go live in 60 - 90 days
The most user friendly product in the enterprise space
Rich Functionality The only TMS that meets all transportation requirements - cargo, people, fleet
First Floor, Amar Megaplex, S. No. 110, Plot No. 11/24, Baner, Pune, India Tel.: +91 20 6627 7777
Email: info@icertis.com www.icertis.com
Crystal Logistics Cool Chain Ltd. Transportation: Reliable, Fast and Timely Solution
Experts in Cold Chain Services n Attractive Spot Offers n Part Loads n One Point Contact for Transactions n GPS and Data Logger Reports Available
Corporate Office: 121CR Avenue, Opp. Md. Ali Park, Kolkata – 700007. Tel: +91 33 22354746/4249. Telefax: +91 33 22217727
Regional Office: B 309, Virwani Industrial Estate, Off Aarey Road, Goregaon (E), Mumbai – 400063 Tel: +91 2240352000 (20 lines), Telefax: +91 2240352012. email: sales@crystalgroup.in
website: www.crystalgroup.in