SCMPr
Supply Chain Management Professional
n Mindset n Knowledge n Best Practice n human resource n Risk Octobeer 2013 Vol. 1窶年o. 8 `150
evolution
Too Little? Time for Cost to Performance Pg.18
In This Issue Academic Advocacy TOC for Supply Chain Replenishment Page...14
LSP Focus Suunil Dabral, Country Head SSI Schaefer Page...38
HR Darryl Judd on Cross Cultural Recruitment Challenges Page...42
Fast beats slow Effective warehouse design means short routes for goods and staff. Using containers in conjunction with intelligent conveyor systems speed up and optimise logistics operations. We show you how to become fast, flexible and efficient. Contact us, we will gladly advise you.
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205x270_5_ SCM Pro_ISS.indd 1
24/6/2013 11:44:35 AM
editorial
From Manufacturing Excellence
To SCM Excellence
W
Girish V S Executive Editor
e have derived benefits from manufacturing excellence. Our manufacturing processes are world class. Going forward the ability corporate which can achieve and sustain supply chain excellence will reap benefits. Those who do not will be consigned to local operations. And if we are to derive the benefits of improved supply chain management, it is time India Inc. turned to the specialist. Time it realizes that supply chain management is not to be consigned to a department within the organization, with the mandate to keep costs low. Time to turn from cost to performance. At the same time, it is necessary for service providers to move from being mere providers of a pre-defined service to value added service providers. This calls for a reworking of attitudes by both the provider and the seeker. A true global supply chain means that both the buyer and provider of the service recognize the other as a partner in their business. For this issue of SCMPro, we examine the 3PL scene in India. Though in its infancy, 3PL is the future of supply chain in India. That said there are challenges that need to be overcome before we can roll out seamless 3PL services. The most important is to find the right people who can take it forward. The industry needs to come together to create the right ecosystem that will help develop the right set of skills in its employees. The National Skill Development Corporation estimates that we will need around 25 million skilled personnel in the transportation and logistics sector over the next 10 years. If we do not start now, we will not be able to reap the benefits of a best in class supply chain. In Academic Advocacy we cover the concept of Theory of Constraints in Supply Chain replenishment systems - one of the solutions to get improvement in a multi-echelon supply chain. Again something that 3PL players need to be aware of. We look forward to your comments and opinions. They for the life blood of SCMPro. Happy Reading!
Executive Editor
SCMPr
October 2013
3
Contents
07 Insight >> Dr. Rakesh Singh, on why Forecasting is Important for true advantage of Indian Companies.
10 ceo-mindset >> Sanjay Sethi, CEO, Food & Beverages, Export Trading Group says Indian Logistics Service provider’s has immense role to play in Africa.
14 Academic Advocacy >> A Study on Theory of Constraints in Supply Chain Replenishment Systems.
32 column >> Mr. Anil Sathe on evolution of Green Supply Chain.
34 WMS–FEATURE >>
October 2013
A Business Case on mature and must technology partner for efficient Supply Chain.
4 SCMPr
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SCMPr
18 lead story
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 Shivasankaran Pillai shiva.pillai@scmp.in
evolution
Too Little? SCMPro brings to readers a Current state of 3PL Industry in India - with experts’ views on Challenges and road blocks ahead.
38 Lsp focus >> Suunil Dabral, Country Head SSI Schaefer on Indian Warehousing Industry.
42 Human resource >> Darryl Judd on Cross-Cultural challenges.
46 risk analysis >> Shouvik Chattopadhyay on GEPE as the efficient tool for Risk Analysis in Supply Chain Management.
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insight
Forecasting
For True Advantage Dr. Rakesh Singh says Indian firms must understand the nature of demand, their success and building capabilities and methodology around the same can help them be a better organisation and reap true competitive advantage.
I
Rakesh Singh Director, DSIMS, Chairman ISCM.
n a class of forecasting, the students asked me whether forecasting is dead and markets have to be managed with the help of supply chain capabilities. It got me thinking that in an uncertain world, which is far more globalized, one could have imagined that with faster product development, increasingly flexible manufacturing systems, an unprecedented number of variety of products competing in markets ranging from apparel, toys, power tools to computers and other hi-tech products, forecasting would be all the more important. Or is forecasting really dead? Are all products becoming uncertain? There are products which still depict characteristics of uncertainty. A research by Fisher on “What is the right supply chain for your product�, it was found that products with high implied uncertainty have a high margin compounded by the problems of high forecasting error as well as high stock out rate. Even average forecast markdowns are high. Whereas products with low product uncertainty have lower average forecasting error than lower stock out rate as well as average forecast markdowns. Business with low implied uncertainty is easier to predict as demand is more certain. They only get affected when the overall landscape in terms of macro economy undergoes rapid
changes including structural changes. But in the case of high implied uncertainty, the volatility in the supply chain emerges primarily from increase in the range of quantity demanded, decrease in lead time, increase in availability of products required, and increase in numbers of channels through which products may be acquired and requires service level increase. When supply chain enthusiasts question forecasting as an effective tool for demand planning and supply chain planning, they forget the difference between demand uncertainty that emerges from macroeconomic environment and low and high implied uncertainty, which are function of the actual demand in terms of range, quantity, lead time and service levels. This confusion makes it difficult for the corporates to resort to appropriate forecasting methods, forecasting processes and need to restructure the organisation in terms of managing these forecasts. Traditionally, businesses have been using three prominent methods of forecasting: 1. Time Series Model 2. Causal Forecasting 3. Judgemental Forecasting The question arises that “How does the company use these forecasting methods as a fundamental base for demand and supply chain planning when implied uncertainty is SCMPr
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insight Customer Need
Causes Implied Demand Uncertainly to...
Range of quantity required increases Lead time decreases Variety of products required increases
Increase because a wider range of the quantity required implies greater variance in demand Increase because there is less time in which to react to orders Increase because demand per product becomes more disaggregate Increase because the total customer demand is now disaggregated over more channels
Number of channels through which product may be acquired increases Rate of innovation increases Required service level increases
Increase because new products tend to have more uncertain demand Increase because the firm now has to handle unusual surges in demand Supply Source Capability
Source: Adapted from “Aligning Supply Chain Strategies with Product Uncertainties.” Hau L. Lee, California Management Review (Spring 2002), 105-19.
Frequent breakdowns Unpredictable and low yields Poor quality Inflexible supply capacity Evolving production process
Causes Supply Uncertainly to... Increase Increase Increase Increase Increase
high”? The macro economic environment is volatile and still there are certain products which are seasonal in demand and certain and can be predicted easily. Sunil Chopra in his famous book on Supply Chain provides a beautiful framework to understand these uncertainties and create an effective forecasting and demand planning process. According to him, the business needs to bring about a strategic fit between the supply chain and the larger competitive strategy. There are three basic steps to achieving these strategic fits. 1. Understanding the Customer and Supply Chain Uncertainty: As in the table, it is clearly understood that changes in the customer needs and required service levels tend to increase the implied uncertainty forecasting the supply chain to identify the extent of uncertainty of demand and any delay, the supply chain must be prepared for. It also helps an organisation understand what kind of capabilities are required to react to the market with a large variety and quantity with the lowest lead time and high service levels. 2. Understanding the Supply Chain capabilities: The firm needs to build its capabilities by increasing efficiency and responsiveness by doing the following: n R espond to wide ranges of quantities demanded n Meet short lead times n Handle a large variety of products 8 SCMPr
October 2013
n n n
Build highly innovative products Meet a high service level Handle supply uncertainty 3. Achieving Strategic Fit: The firms needs to marry the understanding of the implied uncertainty and demand uncertainty ot the capabilities and create a strategic fit as in the diagram: Finding the zone of Strategic Fit Responsive Supply Chain Responsiveness Spectrum
of ne Zo
Efficient Supply Chain Eertain Demand
Fit ic g ate Str
Implied Uncertainity Spectrum
Uncertain Demand
The beautiful case study which represents this dilemma is the case of Asian Paints Ltd., which by using a supply chain suite called “Demand Planner” managed its uncertainty in a beautiful way to create a supply chain capability which would be the best strategic fit between the supply chain and the business strategy, creating a competitive advantage for the supply chain. They were faced with uncertain demand, causal demand, and low implied uncertainty in seasonal products and high volatility in institutional buyer’s demand. Instead of looking for a single supply chain forecasting method, they used the approach of uncertainty and strategic fit to solve the problem. The forecasting consisted of the following: Forecasting Method and Zone of Strategic Fit- Asian Paints Responsive Supply Chain Responsiveness Spectrum Efficient Supply Chain
Fit gic e t tra fS eo n Zo
Peak to Average
Causal
Large User Business
This helps them to reduce their inventory by aligning their demand plan to supply schedule to factory planning to manpower planning. Asian Paints today is a leader in terms of managing uncertainty in demand and supply and creating a win-win supply chain.
EXCLUSIVE SEMINAR ISCM ISCM Brings Brings you you a a Unique Unique Conference Conference on on the the emerging emerging scenario scenario in in Supply Supply Chain Chain Management Management ISCM ISCM is is at at the the forefront forefront of of Supply Supply Chain Chain education education in in India. India. We We bring bring you you an an opportunity opportunity to to listen listen and and interact interact with with some of of the the experts experts in in supply supply chain chain management management from from the the Asia Asia Pacifi Pacificc region region in in aa one one day day conference conference on on emerging emerging some trends trends in in SCM SCM and and what what we we in in India India can can do do to to tap tap the the opportunity. opportunity.
Some Some of of the the probable probable speakers speakers are: are: Sean Sean Rafter Rafter – – Head Head Logistics, Logistics, Asia, Asia, Save Save the the Children Children Brian Brian Beveridge Beveridge – – Sr. Sr. Director, Director, Global Global Supply Supply Chain, Chain, ATMI, ATMI, USA USA Peter Peter L. L. O’Brien O’Brien – – Russell Russell Reynolds Reynolds Associate, Associate, Australia Australia Mark Mark Goh Goh K. K. H. H. – – Associate Associate Professor, Professor, NUS NUS Business Business School School (Department (Department of of Decision Decision Sciences) Sciences) Wayne Hunt Hunt – – President President // CEO CEO TOLL TOLL Global Global Logistics Logistics Divn., Divn., Singapore Singapore Wayne Dr. Dr. Ioannis Ioannis N. N. Lagoudis Lagoudis – – Assistant Assistant Professor, Professor, Malaysia Malaysia Institute Institute For For Supply Supply Chain Chain Innovation, Innovation, Malaysia Malaysia Paul Paul Gallagher Gallagher – – Asia Asia Pacifi Pacificc Supply Supply Director, Director, DIAGEO, DIAGEO, Singapore Singapore Gaurang Gaurang Pandya Pandya – – Vice Vice President, President, Industry Industry Strategy, Strategy, JDA JDA Software Software Group, Group, Inc, Inc, Dallas, Dallas, Texas Texas Sunil Sunil Chopra Chopra – – IBM IBM Professor Professor of of Operations Operations Management Management and and Information Information Systems, Systems, Kellogg Kellogg School School of of Management Management Dr. Dr. Mahender Mahender Singh Singh – – CEO CEO & & Rector, Rector, Malaysia Malaysia Institute Institute for for Supply Supply Chain Chain Innovation, Innovation, Malaysia Malaysia
If If you you would would like like to to participate, participate, please mail in your intent to: info@iscmindia.net please mail in your intent to: info@iscmindia.net Presenter Presenter
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1st 1st Floor, Floor, Durgadevi Durgadevi Saraf Saraf Institute Institute of of Management Management Studies, Studies, SS V V Road, Road, Malad Malad West, West, Mumbai Mumbai 400064. 400064. email:info@iscmindia.net z website: www.iscmindia.net email:info@iscmindia.net z website: www.iscmindia.net
n Mindset
n Knowledge
n Best Practice
n human resource
n risk
From Africa with Love
Catalyzing Agri Supply Chains Africa will soon emerge as the food basket of the world. Export Trading Group has expertise in managing the most vertically integrated agriculture supply chain on the African subcontinent with operations spanning procurement, processing, warehousing, distribution and merchandising across 30 countries. Prof. Shouvik Chattopadhyay, Coordinator – Department of Transport & Logistics Management, Institute of Engineering & Management Kolkata, catches up with Mr. Sanjay Sethi, CEO, Food & Beverages, Export Trading Group. control over transport and logistics maximizes synergies and efficiencies at every stage of the value chain continuum. This expertise can be used by the Indian food industry to manage supply chain logistics and exposure to African market and maintain world standard quality of food. ETG can play a major role in globalizing Indian food sector in following ways: n Be the strongest link between farmers and consumers globally. n Empower farmers to grow quality crops. n Provide a reliable market and fair prices for commodities. n Support India to process the commodity to international standards. n Support India efficiently deliver the commodity to the end market. What are the trends that persist in global logistics scene? Sanjay Sethi CEO – Food & Beverages, Export Trading Group. What is your outlook for the impact that Indian Food Sector can make in the world market?
Export Trading Group has presence in more than 30 African countries. It is present in North America, India, China and South East Asia. Owning and managing the supply chain from start to finish, helps move agricultural commodities between regions, strategically matching one area’s market origination capabilities with market consumption patterns in another. The capacity to store commodities close to their point of origin for extended periods of time and 10 SCMPr
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Trend 1 – Customers are Demanding Specialized Logistics Solutions The shift to global manufacturing driven by a desire to access lower labour costs exposes organizations to higher transportation costs and regulatory barriers. As organizations grow and sell to customers in more regions, complexity will rise. A global customer base creates a new set of challenges for organizations accustomed to providing standard logistics solutions to a homogeneous regional customer base. Customers are not only demanding accuracy and reliability, but are also requiring customized and complex solutions. There are multiple external forces and trends occurring in the global market. This includes the spread of urbanization, the spread of wealth, the economic
CEO–Mindset power moving from West to East, young to old, the digitization of the economy, the increased focus on health – all of these things change the way people buy things. The importance of an information platform is also critical. In the future customers will have reach into supply chains, to be able to track the state of their order. Trend 2 – Companies are increasingly Part of Networked Economies The second important trend refers to the requirement that organizations build network capabilities to survive in the competitive environment. There has been an explosion of new channels to customers that are not well developed and that are linked with other channels. Trend 3 – Customers Are Relentless on Cost Pressure and Working Capital Reduction Competitive cost pressure continues to drive organizations to seek optimized logistics networks. The pressure of the last five years has driven many companies to capture the “easy” cost savings, and additional savings require more sophisticated approaches. Customers in India are expecting cost reductions in the supply chain on an annual basis of about 2-3%. India has rising employment costs, so pressure on the supply chain is focused on its redesign and optimization. Now Logistics Service Providers are redesigning their trucks to carry larger capacities, driving freight consolidation and designing routes so that multiple customers can be served by a single truck. To reduce food loss in transit, food companies are investing in new processes and technologies— from more frequent temperature monitoring and inspections to increased use of mobile technology, global positioning systems, trailer seals, RFID, and biometrics.
Organizations in multiple sectors are continuing to pursue global growth strategies that focus on expansion into new regions. In particular, the focal BRICS countries represent major targets for expansion, but with them come a host of new problems which enterprises have little experience in dealing with. Examples of major growth strategies and the associated challenges are found in multiple industry sectors. Some of these were driven by government regulations, or access to existing logistics networks. Trend 5 – Talent Continues to be a Challenge In Africa, India, China, & Brazil the shortage of logistics talent was the most challenging issue, as many universities in these countries do not have logistics training in their curriculum. Managing a logistics talent pipeline means not only recruiting the right talent, but retaining and keeping talented individuals on-board in a competitive market for supply chain professionals who have the requisite experience and leadership. This is occurring not just at lower levels, but mid-level and senior level roles. Talent is one of the biggest challenges we face in Nigeria. ETG’s presence in Nigeria in the last two years, we have noticed lack of talent and high recruiting cost in senior positions and operational positions. Apart from the infrastructure issues with Nigerian logistics, the lack of well-prepared professionals in open and low-end senior levels is the biggest challenge in the environment today.
In Africa, India, China, & Brazil the shortage of logistics talent was the most challenging issue, as many universities in these countries do not have logistics training in their curriculum.
Trend 4 – Global Sales Channel Footprints are Growing and Fragmenting
Trend 6 – A Larger Global Footprint Creates More Volatility Volatility is a measure of variation in conditions, whereas risk is the probability of a major disruption to operations. Both are relevant in the discussion of complexity in the global logistics environment, but volatility is perceived as increasing significantly in the logistics environment. Volatility occurs due to increased globalization linked to variation in labour costs, rising fuel costs, regulatory changes, and other parameters that influence where companies source, SCMPr
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CEO–Mindset where they produce, and the complexity of processes required to sell to the customer. Safety and security issue is becoming a critical issue in Nigeria. To date, most companies are still focused on addressing property protection when considering supply chain safety. Very few companies fully realize and understand the impact of supply chain volatility and the consequences, and even fewer consider means of preventing disruptions. The barrier of regulatory issues render it difficult to meet increasing customer requirements for reliable product delivery, and make it challenging to be able to plan using normal lead times, inventory requirements, and scheduling. Do you think Indian Service providers can play any role in African Market in near future?
India’s trade with Africa has grown significantly in the past two decades, from a meager $967 million in 1991 to $70 billion in 2012.
Yes I think Indian service providers will play an important role in African Market in future. Indian imports are mostly primary goods and oil, followed by gold, and other minerals. On the other hand, India exports machinery, transport equipment, petroleum products, paper and wood products, textiles, iron and steel, plastic and linoleum products, rubber manufactured products, agro products, chemicals and pharmaceutical products. Africa has also proved a haven for investment in sectors such as tourism, electronics, computer software and accessories, information technology related products, and financial services. These industries along with food processing will boost the traffic and revenue for Logistics service providers. The challenge the Indian government faces at the moment is to support the private sector in its overseas ventures while also advocating the tenets of democracy and lessons about nation-building to Africa. Despite the fact that India is helping Africa reach out to the world, it is still rebuked for turning a blind eye to the dictatorial and the authoritarian regimes. India should ideally aim for a long-term strategic partnership with the African Union grounded on strong diplomatic. Talking about new opportunity in Africa, which trade lines these service Providers can look to serve?
India’s trade with Africa has grown significantly in the past two decades, from a meager $967 million in 1991 to $70 billion in 2012. Trade with South Africa, for exam12 SCMPr
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ple, totals over $2 billion, and India has offered duty-free tariff schemes to 33 of the least developed countries in Africa, which covers 94% of India’s total tariff lines. Companies like Vedanta have invested in the copper mines in Zambia, Arcelor Mittal has invested $1.5 billion building an iron ore mining plant in Liberia, and the TATA group has panoptic investment in multiple industries ranging from infrastructure, energy, hospitality, automotive parts to telecommunication. One particular sector for which India has big plans in Africa is healthcare. The healthcare sector in India is renowned for its high quality and relatively low cost services. Medical Tourism in India is a $2 billion industry and attracts more than a 150,000 tourists every year. With years of expertise and a lucrative business model, the Indian healthcare firms are investing in Africa. Companies like Apollo Group of Hospitals and New Delhi-based Fortis Healthcare Ltd, for example, are assisting Nigeria and Mauritius in capacity building through personnel training and investing in infrastructure. Another sector of particular note in India-Africa relations is that of agriculture. There is a immense scope for India to play a role in Africa. The scope lies both in import and export to and from Africa.
Wrapping up Supply Chain Management has gained significant importance in the 21st century. It is so because companies like Wal–Mart, Dell and Amazon owe their success to their agile and adaptive supply chain. These were small companies virtually unknown not so long ago and suddenly became the most competitive and admired companies. While some Indian companies are moving towards making their supply chain and logistics efficient, most of them have done very little or nothing. If companies choose to compete in the global environment, they will have to look for ways to reduce expenditures of their suppliers and channel partners, logistics or distribution partners. This reduction in cost will lead the revamping of supply chains and significant investment in information technology, because information technology tools and techniques plays very important role in improving the status of the SCM.
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Academic Advocacy
An effective inventory replenishment method implemented in the supply chain is one of the key success factors to achieve low inventory while maintaining high customer delivery performance. The Theory of Constraints (TOC) Supply Chain Replenishment System (TOC-SCRS) is one of the solutions to get this improvement in a multi-echelon supply chain.
A Study of Theory of Constraints Supply Chain
Replenishment System By Horng-Huei Wu, Mao-Yuan Liao et al Published in the “International Journal of Academic Research in Accounting, Finance and Management Sciences Vol. 3 (3), pp. 82–92, © 2013”.
14 SCMPr
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T
he concept and method applying to the implementation of supply chain, Theory Of Constraints (TOC) was firstly introduced in the best-selling novel written by Dr. Goldratt, ‘It’s Not Luck’ in 1994, namely TOC supply chain solution. For such solution is considered as a win-win solution in terms of conflicts on the supply chain inventory management mainly. This study will briefly talk about the conflicts and the solution in the following first. As for a company, its’ supply chain basically consists of three major parts:
plant, distribution or regional warehouse, and retailers/sale points, as shown in Figure 1. The plant is responsible for raw materials purchase and production, and products are to be stored in the plant (the central warehouse) once they are finished, and then they are delivered to a distribution warehouse where the retailer/sale point can proceed with its service, and after that products are sold to customers by the retailer/sale point. Generally, a distribution/regional warehouse is a company-owned branch, but not necessarily for retailer/sale
Academic Advocacy point. But regardless whether members of these three parts belong to the same company, the so-called efficient “sales” must be the products sold to the main customers by the retailer/ sale points to be considered as the real sales, otherwise they are just the inventory within the supply chain (even if they are noted to be sold to downstream companies, chances the surplus inventory may be returned still exist). In terms of the maximized profit on the supply chain, we must first ensure the main customers are able to purchase goods they desired, and in order to avoid the main customers being unable to buy goods they wish to have, we must place the inventory at places where they can reach them easily (such as retailers/sale points), and to prepare as large inventory as possible in order to meet the peak of demand that may occur occasionally, as shown in Figure 2. In other words, factories should produce products and deliver them to the retailer/sale point as fast as they could in order to meet the main customers’ needs, as shown in the upper part of Figure 2. However in the current market that is intense and competitive, customer requirements are getting harsher and harsher and
the product life cycle is unable to grasp, in order to avoid large inventories causing loss and damages (such as products being returned due to decreasing sales, waste, specifications or quality failed to meet the requirements, etc). Therefore inventories must be stored at the sources of places (namely factories), and should deliver the smallest inventory to the retailer/sale point in order to prevent loss due to demand changes in the market. In other words, the plant shall try its best to delay production and delivery, and deliver its smallest inventory to the retailer/sale point, as shown in the lower part of Figure 2. Hence the conflict graph shown in Figure 2 shows the two difficulties and conflicts the supply chain management and inventory management within each sale point confronts. Generally in the face of the conflict on the supply chain, it is an ability to enhance the response capability of supply chain via a technology aiming at strengthening the market forecast and speed of information feedback. For example, to push the original plant prediction forward into the management mode of retailer/sale point, and then change it into the retailer prediction, and
again to move to the management mode of plant cargo through rapid information response. Although such change can mitigate the abovementioned conflict, but the conflict itself will remained unsolved, and even can get worse. For example, the accuracy of a retailer’s forecast of future sales is found to be lower than that of a distribution warehouse’s forecast, and it is due to the sales of distribution warehouse is the sum of sales of sale points, and hence the accuracy is no doubt to be higher than individual forecast conducted by each sale point. Likewise plant sales is the sum of all distribution warehouse sales, therefore the accuracy on overall sales forecast conducted by the plant is of course higher than the forecast of each distribution warehouse sales. In this conflict, its very nature is not to determine which forecast is better than others (please note that forecast itself consists of risks and it is not always reliable), but it is about what inventory should be placed within the supply chain, as well as how each sale point deals with its replenishment, accounted for the reasonable issues. Therefore, the TOC has proposed the following solutions accordingly: (1) The inventory should be
The Network Graph of Supply Chain sale point regional Warehouse
Plant
Central Warehouse
regional Warehouse
regional Warehouse
sale point
Fig. 1 SCMPr
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Academic Advocacy The Conflict Graph of Supply Chain Management To ensurethat customers can buy the products they want
Preparation of larger inventory
Reduce the too high risk of supply chain inventory
Preparation of fewer inventory
Successful Supply Chain Management
Fig. 2
Source: Goldratt 1994
placed within the source of supply chain (namely the plant). Therefore do not deliver the products to the downstream companies right away by the time they are finished; and distribution warehouses should not deliver the products to the downstream companies as soon as products from upstream companies arrived. (2) Each sale point only needs to store enough inventory needed for such replenishment period. For example, if it takes three days for replenishment and according to the previous sales record, the maximum demand for consecutive three days is 300, and then there should be only 300 in the sale point’s inventory. (3) Each sale point should make up the replenishment in accordance with its sales, by replenishing how much it has sold. (4) To monitor the sudden abnormal condition via the Buffer Management (BM) mechanism in order to prepare for any contingency. Such as the sudden increase in the sales resulting in low inventories, then BM can detect it right away and send out a signal for replenishment need. The above is the main content of the theory of constraints in terms of the supply chain solution. Among which the first point belongs to the new theory of supply chain management, and the second and third 16 SCMPr
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points are referred to a brand new inventory replenishment mechanism, namely the TOC supply chain replenishment system (TOCSCRS), and as for the fourth point, it is the monitoring mechanism of inventory. The focus of this study lies in the discussion of TOC-SCRS. Regarding the TOC-SCRS implementation, please refer to the related documents Holt, 1999; Perez, 1997; Simatupang et al., 2004; Smith, 2001; Yuan et al., 2003). Under the TOC-SCRS mechanism, each sale point has stored the largest inventory that was occurred during the replenishment period, and the volume lies in the sales quantity between the two replenishment periods, hence we can be certain that the sale point has the lowest inventory. And under the BM mechanism, impacts caused by unexpected situations are to be determined, and request of emergency replenishment will be alerted if necessary, as a result, out of stock can be avoided. According to common reactions of various companies (Belvedere and Grando, 2005; Blackstone, 2001; Hoffman and Cardarelli, 2002; Novotny, 1997; Patnode, 1999; Sharma, 1997; Waite et al., 1998; Watson and Polito, 2003) towards the TOC-SCRS, the benefit lies in the reduction of inventory
substantially, enhancement of service quality, reduction in expired products (or reduction in the out rate), and more rapid reaction in terms of market changes, etc. However, the exploration of TOC-SCRS is lack in the literature. In this study, the concept and method of TOC-SCRS is first reviewed and modeled. A virtual supply chain case is secondly designed to show the behavior of the TOC-SCRS. A three factorial experiment, i.e., fluctuation of demand, time of replenishment and frequency of replenishment, is then presented to explore the feasibility and effectiveness of TOC-SCRS. A simulation model is designed to complete the experiment.
Conclusions This study established a model in accordance with TOC supply chain mechanism, used the EXCEL software to run the stimulation and analysis based on three factors including average daily demand, demand standard deviation, and TRR. The results showed that in the situation when the average daily demand and demand deviation are distributed similarly and the TRR are in different values. As the TRR value gets higher, what inventory level system gets higher as well, and no significant differences are found in the standard deviation. And as the TRR values are fixed, the larger the FR value the higher the average ending inventory level and standard deviation of inventory level along with changes in the average daily demand and standard deviation are larger, the average ending inventory level within the system and standard deviation get higher as well. Therefore we know the TRR and FR determine the inventory level within the system. You can access the complete article at: http://hrmars.com/hrmars_papers/ Article_09_ A_Study_of_Theory_of_ Constraints_Supply.pdf
lead story Lead story
evolution
Too Little? 18 SCMPr
October 2013
lead story
Apart from Automobiles, Indian Companies has yet to embrace 3PL. India is yet to witness a genuine 3PL play. SCMPro discuss the current state of 3PL market in India - least developed and highly fragmented.
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eography becomes history. An interesting pun on the subjects. With firms locating their manufacturing at far flung locations, their supply chains become complex and layered. This creates challenges to the firm that is used to simple supply chains. Corresponding to the increase in complexity of the supply chains, 3PL or Third-party logistics is gaining importance. An increasing number of corporations across the world are outsourcing their logistics activities to 3PL or logistics service providers. India seems the exception. Even in Automobiles, the only Industry to embrace 3PL in India, outsourcing is prevalent. Barthco defines Third-Party Logistics provider as one who is responsible to “integrate, coordinate, and manage functions for the smooth handling of sourcing, output and production.” Integrate, coordinate,
and manage functions provides to its customer’s logistics services for part, or all of their supply chain management functions. Third party logistics providers specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers’ needs based on market conditions and the demands and delivery service requirements for their products and materials. In this issue of SCMPro, we take a look at this emerging area in supply chain management. We believe that if we have to derive the benefits of a efficient supply chain, we need to adopt 3PL services in a big way. When we speak of 3PL, we identify with the definition as given above – and not a narrow view of outsourced transportation. We start the series with an interview with Samik Chkraborty, Zonal Business Head – East, DIESL on the state of 3PL services in India. He speaks about a series of issues facing the 3PL player – including the threats and opportunities. The next we look at the scope of innovations in 3PL services in “To be or Not to Be: Innovation in 3PL Relationships“ Logistics was considered to be a low involvement area for a firm. Its sole purpose was to deliver the raw material to the factory or the finished good to the consumer. However, of late, management attention is turning to logistics, primarily driven by efficiency enhancement and cost reduction. SCMPro takes a look at the role of innovation by 3PL players and its impact on 3PL choice. In Disruptive Technologies in Logistics – Threat or Treat? we look at the future of logistics that will be defined by technology. Some of them would increase the efficiency of the 3PL logistics sector. Some of them would be disruptive. We look at some of the disruptive technologies that will re-define 3PL services in India. In Talent and diversity – the HR Challenge for 3PL, we examine the talent challenge in 3PL services. 3PL services are built on three pillars – technology, infrastructure and talent. While technology and infrastructure can be procured by investments, talent crunch is a far more serious challenge. Trained and capable talent is the cornerstone of service levels and quality. Happy Reading! SCMPr
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service 3PL is set to emerge as a viable and effective alterative to firms who manage their own supply chains. However, there are quite a few challenges the sector faces. SCM Pro speaks to Samik Chakraborty, Zonal Business Head – East, DIESL on the state of 3PL Services in India. What is your view of 3PL service in India?
Logistics in India has become an area of priority in the past few years. Increased industrial production and growing consumer market has fuelled the need of specialized logistics management which is the key growth driver for 3PL Industry. Though few Industries like Automobile, FMCG, Retail, Hi-tech & telecom have been the major users of 3PL services but gradually other Industries are also outsourcing their logistics. According to the report of the working group on logistics outsourcing in India is not more than 52% and the average share of 3PL Industry is 1% only. So 3PL Industry is bound to grow and in a trice the growth rate would cross the current average of 15-20% per annum. Factors like Time, Cost, Complexity and Risk play a major role in the feasibility and surge of the 3PL Industry in India. In India some pieces of logistics hardware are not at par with the global standards like, 20 SCMPr
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infrastructure, road & rail networks, sea ports and inland waterways, and warehouses But of late some significant infrastructural improvement has been observed and also it is expected that there would be some uniform taxation policy and focus from Government to reinforce the supply chain Industry in India. 3PL Industry in India is progressively picking up focus and promises a substantial growth. Who is an ideal customer for 3PL?
An ideal 3PL customer would be someone who needs low cost manufacturing connected to highly efficient supply chain network. However, any customer who wishes to ensure the supply of right product in right quantity, right condition, at the right place, right time, and right cost to his target consumer can be a 3PL user. Where are the biggest opportunities, and threats, for 3PLs?
lead story Opportunities: n Surge of Organized retail n Increase in Foreign Trade n Entrance of MNCs and India’s emergence as a Manufacturing Hub n Increasing focus on maintaining core competencies and resulting outsourcing n Leveraging the benefit of technology in Supply Chain Threats: n Threat of new entrants – Low entry risk and innumerable local players n Bargaining Power of Customers – because of highly fragmented nature of the industry and strong presence of small business owners and local players, customers tend to squeeze LSPs on price which results inferior quality of 3PL services n Competition among the organized players – Almost all the organized players offer the same quality of infrastructure and services. Lack of differentiators cause price erosion. n Bargaining power of Suppliers –3PL service providers cannot control the basic cost components like fuel price, minimum wages, cross border taxes etc. How are you fighting commoditization in a tough market, and making sure you understand the needs of your customers?
It’s true that business expansion is a challenge in a recessive economy. The differentiators play a major role for the customers while outsourcing their logistics. We always try to keep the uniqueness in our product offerings by understanding customer needs and customizing the solutions. Consolidation of multiple services, making a cost effective efficient supply chain model and adding value to customers business is our preference and this also gives us immunity against commoditization in marketplace. What are the challenges you find in growing your business in India?
Many Indian companies consider logistics as only a cost rather than a strategy for improving supply chain efficiency. They focus on logistics cost competitiveness only. The Indian infrastructure is also far behind than the global standards. Setting up a warehouse takes at least 300 days in India, where countries like Finland, Korea, USA & Denmark make it within 100 days only. National Highways consists only 2% of overall Indian road network but carries 40% of the major traffic. It’s not difficult to understand why the transit time
in India is so high. The road congestion and time consumption to cross interstate borders are the deterrents of improving supply chain efficiency. Railways are still a preferred mode for bulk transportation only like coal and minerals. It could not be put in use for other commodities yet. The even spread of infrastructure and facilities are not there in water transportation also. 70% of the seaborne trade is handled by only 2-3 of the major ports out of 12.Which causes higher vessel turnover time, custom inspection and clearance time, vessel berthing time etc. Apart from Infrastructural bottlenecks, the tax regime and recovery process in India is cumbersome and complicated. The much expected GST implementation is still in jeopardy and uncertain as well. What is your take on the role of technology in the 3PL sector?
Technology plays a key role in 3PL sector which differentiates the organized players from the unorganized ones. Barcodes, Scanning and RFIDs have changed the entire material handling process and inventory management now. It’s the best way to curb the manual errors. Advanced warehouse management and transportation management software also contribute to improving the supply chain efficiencies significantly. Do you think the failure to stay on top of emerging technologies could put a company at a competitive disadvantage?
Partially true in the present scenario as there are a few instances where without much technological support some semi organized Indian players created a big logistics network and are managing a wide range of customers from different Industries. But technology would play the role of a major differentiator in future. Without technology the cost cannot be kept competitive in the long run. Technology and automation will not only reduce cost of manual work but also reduce error and bring in efficiency and excellence in the system. How can a 3PL provide its customers with greater awareness of risks and the means for their mitigation?
Continue to develop a cost-effective and efficient solution that brings value. 3PL service providers manage the supply chain of customers from different Industries. They cater to different business needs in different markets. The good practices of one industry can be replicated to another and the customers will get the benefit of staying competitive in market. SCMPr
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lead story
To be or Not to Be:
Innovation in 3PL Relationships Logistics was considered to be a low involvement area for a firm. Its sole purpose was to deliver the raw material to the factory or the finished good to the consumer. However, of late, management attention is turning to logistics, primarily driven by efficiency enhancement and cost reduction. SCM Pro takes a look at the role of innovation by 3PL players and its impact on 3PL choice.
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o remain profitable in a tough economic environment, firms choose to increasingly outsource their non-core activities. This trend has been observed across the world – from the developed world to the developing world. India Inc too has embraced outsourcing. However, this trend is not seen in the supply chains of India Inc. If we are to create efficient supply chains, we need to recognize that time has come for India Inc to outsource their supply chains – embrace the idea that logistics and Supply Chain are specialized functions best left to experts – in this case 3PL players. The future belongs to the specialist – and the specialist cannot remain a mere service provider, who will move goods from point A to point B at the least cost. To retain profitable customers and gain better customers, 3PLs should be able to provide innovative solutions to both the customer and the provider themselves.
Mere replacement of the services performed by a department within the firm by a third party outsourced entity will not bring about increase inefficiency or reduction in costs. A 3PL player has to create innovative solutions to gain operational advantages. For example, a common issue with automobile suppliers is their unwillingness to co-load. A truck which carries SUV’s cannot be stacked two deep. It can carry only one row. If the trucking firm can co-load, let us say, two wheelers, the same truck can optimize its run. However, for this to happen, the manufacturer has to accept that coloading is beneficial and just because you co-load, your brand does not lose any value. Another benefit of coloading is that it allows the manufacturer to send LTL, without having to wait for orders to pile up so that they can send a FTL. It ensures speedier delivery, at reasonable costs and higher customer satisfaction. However, the challenge in co-loading is not sending a FTL, by aggregating smaller loads. It is in identifying and acquiring multiple manufacturers who can share a trade lane, and who can ensure large and consistent loads, so that the 3PL can offer optimized price and delivery terms. Something that India Inc. has to learn. In a published interview in Supply Chain Brain, Mr. Dillon, director of supply chain technology solutions at APL Logistics says, “Third-party logistics providers are in an ideal position to provide this type of service. We can broker a relationship with multiple shippers, even competitors, because one doesn’t necessarily need to talk to the other–we are the point of contact. Additionally, a 3PL can invest in the solution once and use it
The role of 3PLs in Risk Mitigation Despite challenging business conditions, global revenues for the 3PL sector continue to rise as they continue to improve their business presence and create value for their customers. Faced with increasing competition and a difficult economic environment, customers/ shippers are increasingly turning to logistics Vikas Anand, providers as a key driver of both supply chain COO, innovation and risk mitigation. DHL Supply Chain 3PLs have always needed to innovate by introducing incremental process improvements, adding technology or improving execution. In recent times the global markets have started demanding more creative innovations in order for 3PL to drive optimal value through the supply chain. Customers are now looking at engaging with 3PLs at a strategic level rather than having a tactical approach as product life cycles are shrinking in key sectors like Life Sciences, Fashion & Apparel and Telecom/IT. 3PL can actually help customers stay ahead of the curve and reduce risks by adding much value right from inception to the last mile delivery to stay ahead of their competitors.
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lead story for multiple customers, reducing the cost per customer.” A second area for innovation is the use of multi modal transport by the 3PL player. Since the 3PL player is focused on moving products and information across geographies, they can plan and use the best mode of transport for each shipment, based on the urgency and cost trade off. As 3PL players establish their services, one of the key innovations will be in the area of information flows. With investments in IT, 3PL players can offer order management and fulfillment services across multiple locations and map orders to the customer location, assess inventory, rationalize transit, and manager new orders for their customers. This data creates its own issues. With each entity in a supply chain opting for its own format for capturing data, data integrity is an issue. This leads to the capture of the same data across multiple systems by many operators, increasing the chances of errors and omissions. A 3PL player, who can integrate multiple entities, can reduce this wasteful effort, creating harmonious flow of data across the network. A far more significant innovation that a 3PL player can bring to the table is in managing the risks in the supply chain. As long as supply chains remain fragmented, with no clear owner, the risks in the supply chain become a major issue. A 3PL with his services spread across multiple supply chains will be able to draw on their experience to create risk mitigation strategies. The producer of goods does not have the latitude to develop alternate channels for each supply chain disruption. The sheer complexity of having to develop risk mitigation strategies for a large
Role of Technology in 3PL Innovation Technology continues to play an important role in driving the growth and development of the logistics industry. Emerging technologies such as shipment tracking, warehouse and transport management systems help in modernizing and organizing this industry. The concept of logistics parks is also fast catching up, in Murlidhar Yadav keeping with international practices. The MD, Indian SubGovernment has shown tremendous interest in Continent (a.i.) developing infrastructure and transportation CEVA Logistics modes within the country. At CEVA, we have invested in world-class technology to manage supply chain. Our Matrix™ system integrates transportation, inventory management, order fulfillment, financial settlement and e-commerce applications for visibility and control required by our customers. It links our customers to our operations and other service providers to support inbound, outbound and reverse logistics.
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number of potentially disruptive events adds to the costs they have to foot. The 3PL player, whose business is to ensure continuity of services, can develop innovative strategies to deal with disruptions. In August 2011, a fire in the UK warehouse of Sony; which was the only warehouse storing the products for distribution to UK, destroyed the entire stock. The warehouse stored the entire inventory of PIAS UK, the primary distribution hub for over 150 labels. While insurers may pay for the damage, getting products to customers will be a challenge. An innovative 3PL player would help the firm develop supply chain resilience, helping the firm get back on track earlier. 3PLs can develop innovative solutions that range from basic to complex. Examples are packaging designs, newer deliver systems, better IT infrastructure, provision of new services and creating new infrastructure or innovative facilities. Two researchers from the University of Gavle have classified innovation as Incremental, radical or hybrid, based on the nature of the innovation. Their classifications are: “Incremental innovations are those, which do not bring abrupt and significant change in whole system but are subject to incremental improvement of single basic function; hence bring the incremental improvement in the bigger context. Examples of incremental innovation are use of In-process inventory control, Vehicle routing, Warehouse short interval scheduling, warehouse order selection, order entry, warehouse online receiving, warehouse workload balance, warehouse merchandise locator, sales forecasting, freight audit payment and freight consolidation software(s).” “Radical innovation in logistics is one that brings fundamental and significant change in whole system. Examples of Radical innovations are automated storage and retrieval system, automated material handling equipment and use of robotics. Intermediate innovation in logistics bestrides other two type of innovation example of this type of innovation are introduction of Optical scanner, EDI (electronic data interchange), DRP (distribution requirement planning), Distribution modeling software, MRP (material requirement planning) software, Direct productivity and profitability software, Handheld devices, Bar Codes and Order Processing software.” As 3PL players emerge on to the Indian supply chain scene, we will see them compete for customers based on their competencies and ability to provide innovative and value added services. As on date, quite a few technologies exist that can radicalize the supply chain scenario in India. The manufacturer may not be able to afford these technologies due to limited use. However, innovative 3PL players will be able to use these technologies to drive efficiencies and reduce costs in a significant manner. Time we woke up and smelt the coffee!
lead story
Disruptive Technologies in Logistics
Threat or Treat?
The future of logistics will be defined by technology. Some of them would increase the efficiency of the 3PL logistics sector. Some of them would be disruptive. Girish V S takes a look at some of the disruptive technologies that will re-define 3PL services.
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here was a time when “New improved” was not that often talked about. That has changed. Today when we hear of “new improved” we have a sense of deja Vu. Technology changes have become common place. And some of these technologies have a disruptive effect on how we do business. Supply chain managers need to identify these changes, assess the potential impact of 26 SCMPr
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these disruptive changes and create a winning strategy that will embrace this change. We take a look at some of the disruptive changes that will shape the supply chains of the future.
3D Printing 3D Printing or Additive manufacturing is a process of making a three-dimensional object of any shape
lead story from a digital model. 3D printing is achieved using an additive process, where successive layers of material are laid down in different shapes. 3D printing is also considered distinct from traditional machining techniques, which mostly rely on the removal of material by methods such as cutting or drilling. It is a disruptive technology that potentially changes many aspects of company’s supply chains It also offers both opportunities and threats to the 3PL and Logistics industries. Unlike the monolithic manufacturing of today, where a central manufacturing unit produces a variety of products, 3D printing allows production to be localized at the point of consumption and just-in-time or demand driven. This will mean minimal transportation costs , avoid movement finished goods or holding inventory (except the raw material that feed the 3D printers). Products can be produced on demand at a local 3D print shop. For example, parts could be made at the local service centre, eliminating the need for costly inventory or cut down the lead time between order and delivery from a warehouse. Another benefit of 3D Printing is that it makes the production of an ever expanding SKU range irrelevant – it enables customized production at the point of consumption a reality. 3D Printing has the capability to profoundly affect how we manufacture, store and transport products. According to the most recent Wohlers report on additive manufacturing, the 3-D printing industry increased 28.6 per cent in 2012, expanding into a thriving $2.204 billion market. In 2013, that market has continued to expand at an accelerated pace, well on its way to meeting Wohlers’ target estimate of $5.2 billion by 2020. GE Aviation, for example, recently announced that in less than two years it will begin 3-D printing fuel nozzles to be used in its jet engines. Along with that, the machines and tools assembling that engine could include as many as 200 jigs and fixtures that are themselves products of 3-D printing. 3D Printing has the potential of disrupting the traditional supply chain and replacing it with a globally connected, local supply chain. However, there will still be some products that will be outside the ken of 3D Printing – like pharmaceuticals, food and beverages etc. However, for a vast majority of manufactured product – it could be a reality. You could walk to the nearest 3D Print shop and print your own customized version of the iPhone, or your own Honda Accord!
Digital Supply Chain Another area where technology is changing the way we deliver services is in the media space–books, mu-
sic, video, games, software and other similar content that can be distributed digitally. One area where this dove tails into 3D Printing is the delivery of the software that “prints” the required component. The service provider can tap into the manufacturer’s network, extract the relevant drawing and get it digitally delivered to the printer. Like the traditional manufacturing set up, the media space too needs to carry inventory, transport the product and make it available at the point of sales. Digital supply chain will help the buyer to go to the
Robotics is changing the way warehouses function. From the traditional WMS keeps track of the SKU location and directs the pick, robotics has advanced to a stage where the entire process is driven by robots, reducing the role of the human pick and store personnel. shop, down load the book, and if she wants a printed copy, get it printed right there – thus avoiding the problem of stock outs, transport and waiting time!
Advanced robotics Advances in artificial intelligence, peer-to-peer communication, sensors, and actuators are enhancing the dexterity and intelligence of robots. Advances in robotics make it possible for workers to program and interact with robots a relatively easy task. They are getting more compact and adaptable, making it possible to deploy them safely alongside workers. Robotics is changing the way warehouses function. From the traditional WMS – which keeps track of the SKU location and directs the pick, robotics has advanced to a stage where the entire process is driven by robots, reducing the role of the human pick and store personnel. In a typical warehouse, about 60 to 70 per cent of the labour is engaged in picking the product. Amazon for instance has quite a few innovations when it comes to warehousing – for one, it has adopted the chaotic storage method – where there is no designated place for storage of goods. Goods are scanned into the nearest storage SCMPr
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lead story location and a sophisticated WMS directs the pick routine. In its distribution centre in Arizona, robots bring the rack on which the product is stored to a central location where a human picks the correct product (aided by laser guides) and send it to the packing area on another robot. The racks move. The Human stays put. One benefit of the increasing use of robotics is that it could save energy spent in lighting up the warehouse. And to an extent (where temperature controlled storage is not necessary) in reduced cooling for the warehouse.
Autonomous and near-autonomous vehicles A recent McKinsey report titled Disruptive technologies: Advances that will transform life, business, and the global economy, says “It is now possible to create cars, trucks, aircraft, and boats that
XBRL offers a standardized way to package business information at its origin and transported faster, cheaper and with greater security, through all the links in the supply chain. are completely or partly autonomous. From drone aircraft on the battlefield to Google’s self driving car, the technologies of machine vision, artificial intelligence, sensors, and actuators that make these machines possible is rapidly improving. Over the coming decade, low-cost, commercially available drones and submersibles could be used for a range of applications. Autonomous cars and trucks could enable a revolution in ground transportation—regulations and public acceptance permitting. Short of that, there is also substantial value in systems that assist drivers in steering, braking, and collision avoidance. The potential benefits of autonomous cars and trucks include increased safety, reduced CO2 emissions, more leisure or work time for motorists (with hands-off driving), and increased productivity in the trucking industry. Autonomous vehicles offer several potential 28 SCMPr
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benefits, including reducing deaths from motor vehicle crashes and reducing CO2 emissions. With computers controlling acceleration, braking, and steering, tightly spaced cars and trucks can safely travel at higher speeds; when one vehicle in line brakes or accelerates, they all do. Since most driving accidents are caused by human error, removing drivers could actually increase traffic safety and reduce deaths, injuries, and property losses. Convoys of trucks could speed down the highway with no driver needed (or just one driver in the lead truck), with as little as one foot of space between them.76 Roadways could accommodate more vehicles without expansion, and acceleration and braking could be optimized to reduce fuel consumption and CO2 emissions. In addition, closely spaced vehicles have much lower aerodynamic drag, which further reduces fuel consumption.” Again a disruptive technology, one that removes the driver, or at least reduces the stress on the driver due to transporting goods across long distances.
XBRL Yet another disruptive technology that is emerging is the XBRL (eXtensible Business Reporting Language). Like the current process of shipping goods from one location to another, where each entity in the supply chain passed the goods from one link of the supply chain to another—from truck to railroad and onto a ship or aircraft and back; each piece of cargo had to be separately loaded, packed, arranged and unloaded. Similarly, business information that passes from one link in the chain to the next, must be interpreted, cleansed, reformatted, scanned, keyed in and re-keyed in, verified and cross checked at every node of the supply chain. This information flow that mimics the flow of goods is time-consuming, costly and exposes the information to breakage and pilferage in the form of distortions, errors and, sometimes, even fraud. XBRL offers a standardized way to package business information at its origin and transported faster, cheaper and with greater security, through all the links in the supply chain. XBRL allows firms to integrate a fragmented supply chain around a single, common standard, to enable seamless, efficient delivery of goods across roads, rails, air and water. XBRL will allow the 3PL player to slash cost of extracting data and converting it into meaningful information. And in the age of technology, information is power. XBRL will encourage new kinds of reporting, allowing the 3PL to leverage the power of information embedded in their operations.
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lead Story
Talent and diversity
The HR Challenge For 3PL 3PL services are built on three pillars – technology, infrastructure and talent. While technology and infrastructure can be procured by investments, talent crunch is a far more serious challenge. Trained and capable talent is the cornerstone of service levels ad quality. Girish V S takes a look at the talent challenge in 3PL services.
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here was a time when talent in supply chain meant hiring a graduate with reasonable skills and pushing him or her off the deep end – the employee will either learn to swim or sink. Training was a scarce process and development unheard of. However, with the emergence of 3PL, and the pressure from service seekers to improve efficiency and cut costs, talent in supply chain management has taken on a whole new meaning. If we take a cue from the USA, where these trends first emerge, it is not surprising that fresh MBA graduates 30 SCMPr
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in supply chain command much higher salaries than their established peers. Today HR in 3PL are looking for a set of people with technical skills and leadership qualities who can bring a fresh perspective to their jobs and to their customer requirements. According to the National Skill Development Organization of India, the transportation and logistics sector employed around 7.3 million people in 2011 and the number is expected to increase to about 25 million by 2022. Seventeen million more workers over the next 10 years. That’s an enormous challenge,
Lead story particularly considering the struggle to find workers with requisite skills. The challenge for the companies trying to expand domestically or Internationally is to recruit promising employees and providing regular training for their development. A career in the supply chain sector suffers from an image problem. A career in a warehouse or logistics entity is considered as not so attractive and has come to be associated with sub-par working conditions and hardships. The service buyer – the manufacturer sees the industry as someone who fulfills a basic requirement of ensuring distribution of their products to the customer in time, at the least cost. The only criterion is lowest cost. And as the saying goes – you pay peanuts, you get monkeys. To add to the problems, talent today is not satisfied with salary or assured career path alone. But looks for challenges and an opportunity to use their skills in providing innovative solutions. The industry needs to provide them with the challenges, if it wants to attract talent. If logistics is considered to be about moving products from producer to consumer, 3PL is all about people. The quality of talent will decide the success of a 3PL player. Traditionally talent management meant identifying a requirement, recruiting the right candidate, and retaining the employee. However, with 3PL player, the challenge is to develop the skills required for meeting the unstated requirements of the customers, well before the customer demands it!
According to a paper by Mr. Jerry Hammon, Vice President, Transportation and Logistics, Genpact, on the facts that affect talent management in 3PL sector. The need to deliver innovation in a constantly changing business environment, especially with the emergence of Big Data, will impact all 3PL organizations. While some will be able to fill the skill gap demanded by the changing landscape, others will be left without access or pathways to critical talent. The cost of hiring, retaining and training people will rise sharply. Logistics players will find it harder to control expenditures (keeping an eye on margins all the while) while holding on to the talent they sorely need to drive innovation and excellence in execution.
Talent Management Innovations (from the Transportation and Logistics 2030, Winning the Talent Race report by PWC Cross-age Career Collaboration: Career paths have traditionally been developed individually, rather than across teams. New trends in career design are now taking a broader view. For example, some companies now systematically pair up junior and senior project managers. That helps younger employees advance faster and gives more experienced employees the opportunity to develop mentoring competencies. We call this ‘Cross-age Career Collaboration’ (3C). 3C could enhance the employer brand and serve as an important point of differentiation for transportation and logistics companies.
Edutainment: Edutainment combines education with entertainment to make learning more fun. For example, the MIT Sloan School of Management developed a game around beer distribution to help teach students about the importance of visibility in the supply chain.
Virtual Academy: As workforces become more global and mobile, their working and educational needs are changing. A Virtual Academy would offer a broad range of educational services available online, accessible from all over the world.
An innovative idea that is emerging is the collaboration between partners in the supply chain, where the 3PL player can tap into the talent and skills of the partners to deliver excellence to their customers. This is not as easy as it sounds. At the very basic level, the entities in the supply chain, the customer, the service provider and the 3PL player combined will need to harmonize their processes and systems to be able to derive value from such collaboration. The 3PL player can then ensure that all entities benefit from efficiency and monetary gains. According to a published report from Genpact, “Our collaboration with a 3PL major resulted in accrued benefits being passed on to their end-customer which realized a 10-12% saving in transportation cost, 8-10% saving from carrier sourcing and 5-6% saving from better inventory classification.” To compete in a global economy, and deliver value to their customers, 3PL players will need to find better educated employees. In India, economic growth is already significantly outpacing talent development, leading to serious skills shortages. In spite of the huge human resources we have – around 20 million Indians are entering the work force every year, we still do not have people who can be employed. 3PL companies in India will need to pick up the slack. That will mean providing in-house training and skills development programs. An interesting initiative by the consulting firm PWC in its report “Transportation and Logistics 2030, Winning the Talent Race” moots setting up a recruitment and development alliance between players. According to the report, companies involved in such programs could work together on recruiting initiatives. They could also help companies to offer more appealing development opportunities, like cross-company job-rotation. In essence, 3PL play in India may be derailed due to the lack of trained and employable personnel. 3PL players will need to come up with innovative ways to attract, recruit, motivate and retain talent. SCMPr
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n Mindset
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Green, the Colour of
Future Supply Chain
The external pressure and Strategic obligations, has forced the organizations to green their Supply Chain. Evolution of Concept Impact of various industrial activities and other developments on natural resources has now reach threatening proportions. Global warming is not being discussed today as possibility but a reality. Organizations have also found themselves under pressure to green their supply chain. This pressure comes from customers, regulators and competitive and strategic obligations. Increasing cost of energy and raw materials has forced businesses to find new ways to reduce their energy use in order to reduce cost and remain competitive in the in the market. One of the greatest impacts that Supply Chain can make in this area is to it drive towards Green Supply Chain. Adding the “Green� component to supply chain management involves addressing the influence and relationships of supply chain management to the natural environment. Anil S. Sathe Senior General Manager, Supply Chain (Products Business), Blue Star.
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Definition One of the ways to define Green Supply Chain would be: The process of using environment friendly inputs and transforming them into out-
puts that can be reclaimed and recycled at the end of their life cycle, thus creating sustainable supply chain. This can make a huge business sense as well and there are many examples where companies have taken lead to ensure their products consume less material, packaging is recycled, technology is used to make transactions paperless and so on...
Few challenges today Lack of information about the Green supply chain best practices: Many surveys have shown that it was not investment costs, but a lack of information on regulations and green supply chain best practices that left organizations with a limited view of what to do and implement. Lack of tools to Optimize Supply Chain with environmental Management: There is no dearth of tools for supporting green supply chain initiatives. The challenge lies in selecting the right tools. Global sourcing: Global Sourcing is considered to be challenge for Green Initiative as it does not
column support reduction in fuel consumption and practices optimum recycling of materials.
How do we start?
Green supply chain analysis provides an opportunity to review processes, materials and operational concepts. It targets wasted material, wasted energy or effort and underutilized resources.
To be successful in implementation of Green Supply Chain initiatives, companies must develop appropriate organizational structures for environmental innovations, which reduce the environmental impact of carrying out particular kinds of activity in terms of consuming fewer resources, producing less waste, and creating less environmental harm. Green supply chain analysis provides an opportunity to review processes, materials and operational concepts. It targets wasted material, wasted energy or effort and underutilized resources. Companies should review all their business processes to identify areas where adopting a greener outlook can actually improve their business Once the company decides on ‘Greening’ supply chain, impact on both upstream and downstream supply chain activity should be studied. Purchasing clauses, targets, practices, and technologies have to be studied in terms of costs of altering supply chain from its traditional focus of cost, quality, and service to include environmental performance. Once this is done we can go ahead in steps based on the business benefits these changes bring in and in turn justify additional costs. Another approach could be to focus on pollution and waste which represent incomplete, ineffective, or inefficient use of resources. Companies should review each process along the supply chain to identify the sources then see if a more environmentally sound approach will drive waste from the supply chain processes. This will ensure continuous improvement in all supply chain operations.
How do we measure? Before we discuss measurement we need to understand what kind of change /improvements are expected from this initiative. A number of environmentally conscious practices can be evident throughout the supply chain ranging from green design (marketing and engineering), green procurement practices (e.g. certifying suppliers, purchasing environmentally sound materials/products), total quality environmental management (pollution prevention), envi-
ronmentally friendly packaging and transportation, to the various product end-of-life practices defined by the “Re’s” of reduction, reuse, remanufacturing, recycling. Some of the simple measures to start could be: n Management systems pertaining to social and environmental performance. n Magnitude and nature of penalties for non-compliance incurred during the year n Number, volume, and nature of releases to land, air, and water. n Environmental liabilities under applicable laws and regulations. n Total energy use including electricity/ fuel etc. n Total water usage. n Total materials used in packaging. Off course more detailed matrix will be specific to the company and nature of their business
Conclusion For green supply chain implementation to be successful and sustainable; transparency collaboration and integration of systems between partners in the supply chain is a MUST. Secondly, senior management support is also important not only because the senior management play an important function in influencing the business attitude towards green initiative, but they can also dedicate resources in terms of time, personnel and finances towards such initiatives. Lastly Green supply chain has to closely align to customer needs which will give the supply chain clarity on the green product design that is required of them. In short, four things to be done to move to Green Supply Chain (and better tomorrow): 1. Define and deploy an environmental management system (EMS). 2. Measure existing environmental impacts and establish goals to improve performance. 3 Publicly disclose their metrics and results. 4. Ensure this becomes a norm across supply chain and is followed by all suppliers and service providers My best wishes to all of you to start this journey today itself. Feedback /suggestions /comments are most welcome on mail ID feedback_scmexcellence@yahoo.com
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feature
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feature
Building a
Business Case
for WMS
Warehouse management system (WMS) is a key part of the supply chain and represents a mature technology. WMS solutions are complex and the potential business benefits and associated return on investment reflects this. SCMPro takes a look at the business case for WMS.
T
he business environment is getting tougher. Businesses need to cut down physical inventory, receive raw materials, handle interplant transfers, pick orders and ship out goods. They need information on inventory and their storage in real time and also need to share it to wide ecosystem of partners, suppliers, customers and financiers. At the same time, the wide geographic dispersion of the customer base and the global sourcing strategy forces them to have multiple storage points across the supply chain. Apart from the geographical spread, firms face a few more challenges–for one, customer preferences are changing quite rapidly and there is an explosion in the SKUs that need to be manufactured, transported
and stored. Alternate channels have mushroomed, with customers opting to buy from on-line and mobile stores. A warehouse is no longer a simple storage facility – it has morphed into a business partner, where quite a few services can be offered – from re-packing to kitting. However, for India, warehouse automation is still in its infancy. In earlier editions of SCMPro, we had looked at some of the emerging practices in warehousing – especially in Amazon, where chaotic storage and robotics, coupled with a feature rich warehouse management system has ensured that Amazon continues to hold on to its unique advantage of being able to ship customer orders within 24 hours from a wide spread warehouse infrastructure. SCMPr
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feature creases responsiveness and customer confidence. n Improved management of the overall billing cycle to customers will have a positive impact on cash flow, resulting in lower company interest costs. Timely and accurate customer invoicing brings cash in quicker.
Traceable inventory with any device
Under normal circumstances, a business case for Warehouse management system would not be an issue. However, given the poor state of automation in India, we take a look at some of the best practices and considerations for building a business case for a warehouse management system. The building up of a business case for WMS, or for that matter any other system should not be the preserve of just the concerned division alone – in this case the warehouse team. A cross functional team including members from sales and marketing, product development, finance, HR and IT needs to sit together to develop the case. While the Sales and marketing would represent the customer side of the story, the product team would represent the supplier and plant perspective. The finance team would look at
the risk return trade off and provide an economic justification for the project.
Components of the Business case A WMS can create a wide range of advantages and benefits to the firm. The team should consider all such advantages when developing the business case for WMS. These benefits may be tangible like reduction in labor, or intangible like an improvement in customer satisfaction. n Improving scheduling consistency and on-time delivery can help position the company as a supplier of choice. n Improved customer service levels will increase sales and margins and reduce returns. n Ability to give improved order status information in-
According to a “Warehouse Management & Control Systems” white paper, savings categories that can be used when building a WMS business case are shown in the Benefit Category Mapping diagram. The items in Area I are easily quantified. They are often at the top of management’s wish list and generally should be included in the business case. The items in Area II may be quantifiable, depending on the firms operation. They may be included in the business case depending upon the situation. The items in Area III are difficult to quantify, so should generally be included in the business case in narrative format, if at all. Some of the common advantages that need to be considered are:
Labor Labor benefits generally comprise more than 50 percent of the overall WMS project benefit. Labor is generally classified in three areas; Direct, Indirect and Administrative. A WMS can reduce receiving,
WMS Investment Summary Investment Category
% of Total Examples
Software & Hardware
30 - 60
License, databse, server, printers, PCs, RF access points, Scanners
System Integration
30 - 35
Consultants, operational charges
Software Vendor Assistance 10 - 15
Professional services, project management, conference room pilot, modifications
Host System Modifications
5 - 10
Interface programming
Internal Corporate Costs
5 - 10
Special training, back fill, retention
Contigency & Other Costs
5 - 10
“Just in case” money
Annual Maintenance
15 - 20
Normally priced as percent of contract value
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Benefit Category Charting More
Management Responsiveness
put away, pick, and replenishment efforts at a warehouse. Amazon does not have a designated rack for its goods. It stores goods randomly, and a powerful set of automation tools ensure accuracy of picking. In a typical warehouse, the picker spends 65% of his time in moving from bin to bin, rack to rack and only 35% of time actually in picking up the order. A WMS can drastically reduce the time spernt in moving around, by directing the picker to the right bin. The developments in robotics has eliminated movement of the picker – the robot brings the bin to the stationary picker, and laser pointers aid them in picking the right product.
Perormance Measures
Visiblity
Value Add
Upgrade Pathe
EDI
Workload Control
Customer service Employee Satisfactory
Misplacaed Orders
Carrying Cost Inventory carrying costs range from 25 to 35 percent of the overall inventory value. A WMS will reduce carrying costs by improving aspects of each carrying cost component: n Inventory Cost: Inventory investment can be reduced due to effective planning and accurate inventory records. n Inventory service costs: If the overall inventory value is lowered, insurance and taxes should lower proportionally. n Storage space costs: Less inventory and more efficient
Management Information
System Availability
Start Up Time
User Group
Space
Intangible
use of space will result in a reduction in space requirements. n Inventory risk costs: Overall obsolescence, damage and pilferage can be minimized.
Inventory Write-Off When inventory cannot be located during a physical inventory or during a cycle counting, firms tend to write it off. The “lost” inventory is removed from the system. With improved inventory accuracy and real time accountability, inventory tends to get lost less frequently in a system- controlled environment.
Labout
Carrying Cost
Equipment
Inventory Demurrage Write-off
Errors
Expedite
Area Iii
Inventory WMS improves inventory accuracy and provides real time information. Therefore, inventory levels can be reduced without affecting customer service levels. Additionally, WMS provides better inventory visibility. Improved inventory management results in fewer raw material and in-process inventories needed for a given level of output. Studies in USA have shown that inventory reductions can range from five to 20 percent or more.
Inventory
Value Add
Area Ii
Labout Shippingg Paper work Accuracy
Area I
Tangible
Characteristic
Sales If the firm can ship out products faster, more accurately, it can increase customer loyalty. This in turn will have a positive impact on sales. Increasing the thruput reduces the time the product sits on the shelf. Reduced shelf time can lead to better utilization of space.
Space With better control over storage, WMS can optimize space usage, enabling the firm to store much more SKs in the same space. This can result in a savings of up to 15% in some cases.
Physical Inventory Count
Cycle Time
The accuracy of WMS eliminates the need for a physical inventory. This enables an organization to spot short-term and/or seasonal fluctuations, to discern long-term trends early, and to avoid end-of year inventory surprises. Improvements in inventory control can result in a 50 to 100 percent saving if the number of times a physical inventory is taken can be reduced or eliminated.
With improved visibility, order cycle times can be improved by 10 to 50 percent. Improved cycle times generally result from a combination of several other factors including confirmed inventory availability, timely replenishment activities, improved labor planning, etc. With shorter order processing cycle times, you may be able to extend your order placement deadline, potentially providing you with a competitive advantage. SCMPr
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lsp focus
Creating World Class Warehouses
Warehouse is the most neglected area in a supply chain. SSI Schaefer is a world leader in warehouse automation. Suunil Dabral, Country Head SSI Schaefer talks to SCMPro on warehouse automation. sign is that it is changing for better for example even though where the land cost is low the vertical storage is considered for the warehouse efficiency. Modern warehouses are doing away from block storage practice and the focus is shifting towards the management of warehouse throughput, space, operating costs and resources optimization. As compared to the global practices, I would say that the countries where population is being controlled have seen the economic prosperity which has pushed the living standards up leading to higher manpower costs. There is another reason for higher manpower costs which is the ‘EHS’ (Environment, Health & Safety) and various countries in Europe have daily allowance limit of weight handling. This has resulted in labour cost going up and fuelled the need of warehouse automation. Globally warehouses have far higher degree of automation as compared to the warehouses in India. What fundamentals go as base when planning a solution?
Suunil Dabral, Country Head SSI Schaefer
What are the trends that persist in Indian warehousing scene? How is it different from the global trends?
The growth drivers such foreign trade, influx of FDI & FIIs in multiple industrial sectors, organized retail and growth in the services sectors have fuelled the need for modern warehousing in the country. India’s logistics spend is 13% of its GDP against the world average of 11% and still the Indian warehousing landscape is far behind the west but the good 38 SCMPr
October 2013
We spend time with our customers and understand their operations in details. We then identify the bottlenecks in their logistics processes and warehousing limitations and develop a solution which is scalable for future growth with minimum additional investments. The solutions are equipped with the technologies which do not become obsolete and customers have a complete peace of mind when it comes to return on investment. This sounds so simple, but this is a real trick how when it comes to doing. But fundamentally everything starts with considering and evaluating the basics because I believe that every complex problem is built of simple problems which were not handled in a right manner. Are there any challenges in terms of Regulatory Policies, Tax and Fiscal provisions, and most importantly -Infrastructure?
lsp focus Yes these challenges are definitely there and will persist in the near future also. The macro-economic landscape is little bit worrying at present for the entire country not just for the supply chains alone. But this has highlighted the weaknesses of our approach and policy system. The Indian currency depreciation has stalled the imports of goods and services and the almost every big infra-structure project has some element of imports in the form of goods (Equipments) and services (Consultancy). The warehousing landscape is also not changing so fast because due to the complex taxation system, companies are bound to have state level warehouses. If GST comes then it will be easier to manage a bigger warehouse rather than multiple small warehouses. What is your approach to sustainability in warehousing?
“
have the best warehouse with the best throughput but if the allied processes like inward and outward are not in line with the warehouse capability then you will have an underperforming warehouse leading to customer dissatisfaction. As CEO, what are your concerns - that which keeps you awake at nights?
My biggest and the only concerns are around the safety at the project sites. In our kind of business this becomes a big issue when there is a Greenfield site and multiple activities are going on. We have a planned schedule which we cannot afford to deviate from so we have to maintain our speed with the safety. Any near miss, accident, injuries are a matter of serious concern for SSI Schaefer. We have very stringent safety norms and we practice them very diligently.
We believe that warehousing activity is not What areas would you like to see more technolcheap from any dimenSSI Schaefer’s corporate ogy penetration? sion hence there is a need to optimize the warehouse In the supply chain, philosophy is to develop solutions operating costs. A sustainthe most technology defifor those intra-logistics needs able warehouse means cient area is the neglected that a warehouse could rewarehouse. In this area which do not exist today but main economically viable there is a need for better will exist tomorrow. A lot of in future even with the ristechnologies for mateing costs. To achieve this, rial handling and mateR&D investment is spent on there is very limited that rial flow logic within the this philosophy throughout the one can do in terms of warehouse. In most of cost cutting but what will the warehouses in India, year. We have developed AS/RS be critical is the efficiency bar coding, RFID, radio cranes (Exyz) which have energy in terms of operating cost technology and WMS/ and volume handled by RFID is already becomregeneration capabilities. that warehouse. This baling common. Wherever ance between the volume the processes are more growth and the operating people intensive, there is cost can be achieved with the use of various technolo- a higher probability of errors, risk and conflict of ingies. At SSI Schaefer, we can help the customers to terest. There is a complete ambiguity around the lastrike this balance in a most optimized way. bour costs levels in India; some argue in favor of lower cost and some against. However, only the labour cost How do you help your customers manage SCM risk? alone is not a single enabler of technology but various SCM risk is also substantial at a warehouse level parameters are there to justify the technologies. apart from other. It is not advisable to ignore the risk of disruption in the SCM in an area which is con- What is your outlook for 2013-14? trollable. We do consult our customer for the right My outlook for 2014 is moderate yet positive. The solution and explain them why a particular solution/ macro-economic landscape is little uncertain but I technology is right for their operation? During the am hopeful that the situation is already red-flagged conceptual stage, we do the warehouse process flow and the government is looking into it. However, any mapping and then visualize the material flow logics. decision taken even now will not bear any desired reThese are further analyzed for any bottlenecks which sults until 1st quarter of next year but some short term are then addressed. In our experience, most of the improvements could be there. This is the time when bottlenecks are around inward & outward. You can we are strengthening our position with our customers SCMPr
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lsp focus through effective customer service for building ever stronger relationships. Taking corrective actions and revisiting SSI Schaefer’s go-to-market strategies will be on the agenda. SSI Schaefer’s Customers’ Patronization Index (CPI) is above the internal benchmark so our India go-to-market strategy will also focus on this. Do you find the business models in the warehouse space changing?
Yes it is very much changing for good now. A warehouse today is a lead indicator of ‘Customer Service’. You can assume one company’s market stability and customer service with the warehouse performance. Today’s modern warehouses have become a point of critical value add. Today you can see modern warehouses where heavy investments are being made on various aspects like the building, flooring, cladding, Insulation, MHE equipments, Intra-logistics, technologies like Radio, Bar code, RFID, GPS, WMS, WCS, ERP, EHS etc. So all this is justified only when warehouse is able to absorb this cost and still viable to operate to enhance value addition. The modern warehouses are not just a place to store but they are a place of value add. How can do you ensure that as customer needs change, your offerings change and adapt to meet their needs? Can you cite an example?
In our industry this is very common. Our decoupling point is based upon our order fulfillment
method of MTO (Make to Order) because our solutions are customized to the needs of the customers only. The needs and requirements vary from industry to industry and product to product. We have built a solution for one of our customer which comprises of adjustable pallet racking, multi-tier shelving, heavy duty cantilever and special free standing mezzanine in one single warehouse. In FMCG/Beverages sector we have given drive-in systems, robotic pallet shuttle system, gravity flow racks etc. I would say that no two projects are identical under normal circumstances. What are the emerging technologies in the pipeline? Are there any new technology based products you are contemplating?
SSI Schaefer’s corporate philosophy is to develop solutions for those intra-logistics needs which do not exist today but will exist tomorrow. A lot of R&D investment is spent on this philosophy throughout the year. We have developed AS/RS cranes (Exyz) which have energy regeneration capabilities i.e. these cranes generate energy for their own horizontal acceleration, multi-deep shuttle based AS/RS, Schaefer tray system, Schaefer Quad System and some more new technologies will be on display in the CeMAT Germany this year. All of our products are patented for the technologies and most of them are the award winning products. We have the most silent conveying systems (noise level below 70dB), Schaefer carousal system, Schaefer Lift & Run….there is a very long list of products.
www.scmp.in ...live supply chain 40 SCMPr
October 2013
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SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry. Specialised articles are contributed by the Industry Leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published in the 1st week of the month, the magazine is distributed to the readers through courier. Currentxly the print copy of the issue is available only for readers based in India. cover Price `150/-
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n Mindset
n Knowledge
n Best Practice
n human resource
n risk
Cross Cultural Calamities...
Darryl Judd
COO, Logistics Executive darrylj@ logisticsexecutve.com
42 SCMPr
September 2013
or are They?
talent
“We didn’t all come over on the same ship, but we’re all in the same boat.” – Bernard Baruch, American financier and statesman
A
few months ago I was attending an International Supply Chain Conference in Asia. One of the session’s topics was ‘Sharing Supply Chain career success stories with fresh graduates in the industry’. The aim of the session was to provide young people with some insight into the real world of logistics and the many career opportunities on offer. A very successful logistician of Anglo-Saxon background, stood up to talk to the students. He began by sharing what he called his ‘secret of success’. He encouraged his eager graduate audience, who mainly shared the hosting country’s Asian culture, to choose an industry they were really passionate about if they wanted to succeed. “Passion, hard work and a little bit of luck will bring the results”, was his sincere message. Some of the audience who shared the same cultural framework as the speaker, that is an Anglo-Saxon understanding of the world, perfectly understood what the speaker meant and were nodding in agreement. However, the greater part of the audience, presumably of Asian cultural background, were frowning, fidgeting and staring with expressions that escalated to the point of mild anxiety as they tried to decipher what this stately and articulate doyen of the logistics world was trying to impart to them. Seemingly unaware of this reaction, our speaker continued by calling on all to “follow their hearts”. This caused even more disturbing glances as by Asian reference,
the word passion tends to denote high romance. Hardly an emotion that should be expressed in a professional context? Could this fellow be behaving inappropriately? Driven to breaking point one of the students very seriously attempted to decipher this seemingly complex and possibly encoded message by asking the question that put a smile of understanding as light bulbs went off on some of the faces in the audience but only added to the confusion of others “what do you actually mean by being passionate ...about a job?” he asked. Unfortunately for the poor speaker, this question prompted
ries have been pushed back in very intimate ways. In recruitment terms, hiring managers and HR professionals now work alongside international and cross-cultural colleagues. As global boundaries are pushed, multinationals and even local companies find it essential to keep their competitive edge by hiring the best talent they can find. Today this often means hiring new employees from global talent banks. Thanks to new technologies such as Skype, we can spend more time talking to colleagues across the other side of the world than the team member sitting at the desk beside us. As a result recruitment, already
In recruitment terms, hiring managers and HR professionals now work alongside international and cross-cultural colleagues. a long explanation of what he meant by passion. This imbued part of the audience with a sense of dread as they silently willed both parties to put the missing jigsaw pieces together whilst the other part of the audience continued to writhe in their embarrassment at the inappropriateness of matters of the boudoir being referred to at a supply chain and logistics conference! Though it is comical, this little story is very common in today’s globalized economy. The bounda-
an industry challenged with an imposing ‘matchmaking’ role, finds itself becoming increasingly the platform for ‘blind dating’ as the culturally inexperienced fumble their way through surprises, mutual misunderstandings and inevitable business risks. Defined as ‘the personal capabilities, underlying characteristics and behaviours that drive superior performance at work across national boundaries’, there is no doubt that for today’s global organization, ‘cross-cultural competence’ is critical. SCMPr
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talent Trying to conduct an interview in your own country where culture is not as problematic presents difficulties enough, so it is easy to see that interviewing candidates from another culture is even more challenging as the number of things that need to be correctly coded and evaluated increases exponentially. “In my years of engaging with foreign talent from Western countries, I find that interviewees tend to be more straight forward. As a Recruiter, being able to get more direct answers from candidates makes the screening process a lot less complicated, though this doesn’t mean that less direct an-
context culture - where more is explained through words or verbalization instead of the context such as Germany, Scandinavia or the US, will provide a lot more detail when asked an interview question than someone from a high context culture like China, Japan or Thailand, who might give a shorter or indirect answer. This can often be interpreted by the interviewer as either talking too much or being wishy-washy, when in reality it is more a question of communication style. If that’s the case and words like ‘success’, ‘better opportunity’ and ‘enthusiasm’ mean different things
“There are examples in our work on a daily basis, as we recruit for clients across the Asia Pacific Region where the most talented candidates are lost due to cultural and communication road blocks.” swers are not of less value, it is just that they need further probing” - says Carmel Perales, Regional Executive Search Manager at Logistics Executive. Different cultural backgrounds not only have different values and therefore motives, but may also have direct or indirect conversational styles, different narrative styles and indicate their attitude in different ways. There are many variables at play. Failing to correctly interpret crosscultural values and behaviours for example, during a job interview revolves around how candidates deal with context. Low and high context cultures are terms presented by the anthropologist Edward T. Hall in his book Beyond Culture. A candidate from a low 44 SCMPr
October 2013
in cultures, how are recruiters/ interviewers supposed to conduct proper intercultural interviews and make the right hiring decisions? If only there was a system that helped the interviewer interpret cross-cultural dialogues; so that when the British candidates say “quite good”, they might mean “a little bit disappointing” or when the Chinese say “yes”, they might mean “I hear you, but I disagree”. Are there interview answers that are considered good regardless cultural context? Should interview questions be designed according to the cultural background of candidates? The bad news is there is no universal “global competency” that can be limited to the same
behavioural indicators for every culture. While the competency may be global, such as leadership, the behavioural indicators will differ from culture to culture if that leader is to be effective in delivering what the organisation needs internationally. Unfortunately, the fact that it has become an everyday activity for hiring managers of various levels to make recruitment decisions in an inter-cultural context doesn’t necessarily mean that they have developed a cross-cultural competence. Although there is little data available on the effectiveness of recruitment practices across cultures, it is highly possible that an interviewer with less cross-cultural exposure will tend to make decisions based on his or her cultural experience and reject candidates who do not fit into his/her personal, cultural framework. According to Ms Perales of Logistics Executive “There are examples in our work on a daily basis, as we recruit for clients across the Asia Pacific Region where the most talented candidates are lost due to cultural and communication road blocks.” This is a concern, as the lack of cross-cultural awareness, understanding and sensitivity on the side of the hiring organization’s decision makers and very often on the candidates’ side, can directly affect communication and assessment. These steps can easily lead to missing out on talented candidates or the wrong hiring decisions that don’t actually comply with company leadership and culture. It doesn’t have to be all that complicated however to overcome these barriers, as long as there is a sincere and open willingness to make the connection. As a starting point here are some easy steps that both employees and corporate entities can follow:
talent 1. Acknowledge and accept cultural diversity. 2 Develop an awareness of different cultures – this doesn’t have to be too complex, you just have to know enough about each other to check in and make sure your message is being understood if you anticipate there may be confusion. 3 Be tolerant – mistakes will happen but keep in mind that both parties will most likely have a strong desire to work it out. Set up a framework of support and acceptance – in fact it is an absolute necessity that you feel you have support in trying to overcome cross-cultural differences, so insist on this if you do not feel it is forthcoming.
4. Keep it simple. Do not use over complicated language or references that are culturally specific (such as our poor Supply Chain presenter’s reference to “passion” in our earlier example). It is probably better not to attempt to humour until you know the level of understanding and reference points of your audience. 5. Don’t be afraid to ask for help! It may be a good idea to ask for the assistance of international hiring and human resources consulting firms who have vast experience in navigating intercultural and language challenges, such as Logistics Executive. English is not the first language of many international business people. Their language
may be peppered with culturespecific or non-standard English phrases, which can hamper the communication process. Again, having an experienced recruiter on hand may be the best solution. It is critical for today’s business leaders to have a strong competency in cross-cultural awareness. Often this is the competitive edge that makes or breaks most companies. Though this can be a complicated endeavour, it may also be one of the most basic. It is important to remember that people, all over the world share a common desire, perhaps even a ‘passion’ (if we may borrow a turn of phrase from our Logistics’ Professional’s example above), to listen and to be heard. All it takes in the business world is a lot of determination, tolerance and a little help.
www.scmp.in ...think supply chain Industry Portal for the Supply Chain Professional SCMPr
October 2013
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n Mindset
n Knowledge
n Best Practice
n human resource
n risk
Supply Disruptions:
GEPE as a Tool for
Risk Analysis Political
Government Type
Stability
Tax Policy
Procurement
Domestic
International
West Bengal
Australia
Economical
Geological
Environmental
I
n this column we will have a look at a tool that can be used for Risk Analysis along with the Risk Matrix for Risk Management. We will understand GEPE Analysis and its importance through diagrams, pictures and news clippings. Hope this will allow for a better understanding of the requirement of this GEPE Analysis rather than through an article. We divide the items procured according to different countries and for big countries like India, China and USA according to different states or zones as per diversity. Then we apply GEPE Analysis. Figure 1 shows the factors of GEPE that will allow for Risk Analysis:
Fig. 1: Supply Chains are Politically Sensitive n Government stability is essential to ensure supply guarantee.
Trade & Tariff Controls 46 SCMPr
October 2013
n Tax policies, trade & tariff control will affect procurement, material storage and movement.
Risk Analysis
Procurement
Political
Domestic
International
West Bengal
Australia
Economical
Geological
Environmental
Current Economic Growth
Projected Economic Growth
Fig. 2: Supply Chains are Economically Sensitive Impact of Globalization
n Will affect future availability of material. n Will affect cost of material, more so in case of exchange fluctuations. n Will affect cost of material storage & movement.
Expected Changes in Economic Environment SCMPr
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Risk Analysis
Procurement
Political
Domestic
International
West Bengal
Australia
Economical
Geological
Stability of Region
Availability of Safe Routes
Fig. 3: Supply Chains are Geologically Sensitive n Any questions?
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Availability of Disaster Response Plans
Environmental
y t l u c a F r o f g n i k o o L s i M
ISC
nals Chain professio ly p p Su e th p hel s you eep insights to agement invite d an ed M ir & u q n ai ac h e C hav itute of Supply If you feel you ledge, the Inst w o kn r ei th of: bootstrap lty in the areas cu Fa e at ci o ss to join us as A Supply Chain M Agri Business
• •
anagement ing
ing & Forecast
Demand Plann Warehousing
• •
Transportation udit Supply Chain A
• •
gistics Shipping & Lo etwork Design Supply Chain N
• • • •
Retail Logistics Sustainability
Logistics Humanitarian e above us in any of th h it w ed at ci e to be asso If you would lik you. e to hear from lik ld u o w e w areas,
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Please Contact: girish.vs@iscmindia.net with your area of interest 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
Risk Analysis
Procurement
Political
Domestic
International
West Bengal
Australia
Economical
Geological
Environmental
Seasonal Effects on Region Fig. 4: Supply Chains are Environmentally Sensitive n Seasonal Variations leading to drought, flooding, avalanches, and snow can have dramatic effects on material movement as well as storage.
Seasonal Effects on Route
n Regular movement of cyclones in the area or through routes can have a dramatic effect on risk as well as cost.
SWOT Analysis
Should GEPE Analysis be made mandatory for all risk assessments? Your views are welcome at shouvik_chattopadhyay@outlook.com.
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October 2013