SCMPro_ September 2013

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Supply Chain Management Professional

September 2013 Vol. 1窶年o. 7 `150

The Future of Auto Logistics Pg.26

Feature:

Reverse Logistics A focus on the emerging segment of Reverse Logistics in India.

Pg.16 Insight On supply chain strategy centered on less oil consumption and greater energy efficiency.

Page...07

In This Issue Interview Srinivas Sattiraju CEO, Delex

Page...20

HR Darryl Judd on how technology and social media are impacting the way companies recruit.

Page...44

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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24/6/2013 11:44:35 AM

editorial

The Bumpy Road To The Strategy Table

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Girish V S Executive Editor

hew. This has been a terrible month. The economy nosedived.

The rupee hit record lows – with it losing a rupee a day, the SENSEX rocked back and forth, Gold went back to its old highs, inflation and interest rates continued to rise. And there were no green shoots to clutch at. When the economy is so bad, can the logistics and supply chain industry be very different. We wondered. Is there something we can do to make our sector more relevant today. And we were convinced we are not doing enough for us to take a place at the high table.

We keep saying our infrastructure is poor. The GST is a no show. We cannot do business because…..(please fill in your reason). But can an industry that is so central to the economy–the sector that keeps the trade moving adopt such a stance. Should we not look at things under our control and fix them. Will it make a difference? We believe so.

For this issue we continue our coverage of specific verticals–we look at the automotive logistics–a sector caught between falling sales and rising customer expectation. We bring you three issues–a look at the future, a look at the aftermarket logistics and the need to go into the strategic orbit.

Apart from this we take a look at Reverse Logistics - Reverse logistics is more than reusing containers and recycling packaging materials. It includes processing returned goods due to damage, change in customer preferences, expired goods, seasonal variation in demand, restock, salvage, recalls, and excess inventory.

Plus we carry the concluding pat of Dr. Rakesh Singhs article–“Lessons of a Failure”–on the learnings from the failure of a few experiments in the rural India on agri chains.

As usual, we invite you to write to us your views and ideas and more important–what you would like us to cover. It keeps us enthused to go farther.

Happy Reading!

Executive Editor

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Contents september 2013 4 SCMPr

07 Insight >>

16 Reverse Logistics >>

Larry Lapide on supply chain strategy centered on less oil consumption and greater energy efficiency.

Team SCMPro takes a look at the emerging Reverse Logistics segment and what it holds for the future.

20 interview >> In a discussion on REVERSE LOGISTICS, SCMPro caught up with Srinivas Sattiraju, CEO, Delex.

22 column >> Sudipta K. Sen on Driving Supply Chain Intelligence with the power of Analytics.

10 column >> Anil S. Sathe on Risk Management in Supply Chain.

25 fdi retail >> Boon or Bane for Tier-2 and 3 Player?

by V G Venkatesh.

40 Academic Advocacy >> 12 column >> Shouvik Chattopadhyay discusses Cause and Effect of Supply Chain disruptions.

September 2013

Meta Analysis of supply chain integration and firm performance: An excerpt from research carried out by Leuschner, Rogers and Charvet.

26 lead story

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

Rashid Iqbal-Director rashid.iqbal@scmp.in

Girish V S, Executive Editor takes a look at the Automotive Logistics segment covering three issues – a look at the future, aftermarket logistics and the need to go into the strategic orbit.

44 Human Resource >> Darryl Judd on how technology and social media are impacting the way companies recruit.

50 Last Page >> Dr. Rakesh Singhs on learnings from the failure of few experiments in Rural India on agri chains.

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Knowledge Partner

insight

Are You Ready for

Expensive

OIL

Supply chain professionals must recognize that the Era of Cheap Oil is long gone. What’s needed today is a supply chain strategy centered on less oil consumption and greater energy efficiency.

M

This article is an extract from Supply Chain Management review (www.scmr.com) and is reproduced with permissions.

Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate.

y inaugural SCMR column in the January/February 2007 issue, titled “Is Your Supply Chain Addicted to Oil?,” was written as a warning shot to supply chain managers. The message: oil was going to continue to get more expensive over the long haul and prices would be more volatile as well. My next column, “The Link Between Oil and Supply Chain Design,” discussed the fact that oil permeates all supply chains.

This meant that the cost- and asset-effective supply chains developed during the heyday of supply chain management—which also coincided with the “Era of Cheap Oil”—would have to be revised. Companies would be forced to squeeze oil out of supply chains and make them more energy efficient and more resilient to big swings in oil prices.

Since then, I have been writing about oil almost annually because I believe that the trend toward higher oil prices is the single most important macro factor that supply managers will have to contend with over the next couple of decades. Specifically, managers will be required to continually evolve their supply chains to align them to an increasingly

expensive oil regime.However, it seems that the volatility in oil prices we’ve seen over the past seven years has masked this critical trend for most shippers. They simply have not heard the warning shot.

In the January/February 2011 issue of SCMR I wrote about slow steaming, a practice whereby ocean carriers slow down their vessels to conserve energy. While this adds days to a voyage and increases sourcing lead times, it is an important program to slow down supply chains and make them energyefficient. I heralded the slow steaming move as a signal that the carriers were on board to better align global supply chains to increasingly expensive oil. I also noted that while some (but not all) shippers were on board, every shipper would eventually realize that they need to work closely with the carriers to make supply chains more energy efficient through programs such as slow steaming.

So I was surprised when I saw the title of an online Logistics Management article (logisticsmgmt.com, June 6, 2011), “SlowSteaming is Disrupting Supply Chains.” The article cited a study by BDP International and St. Joseph’s University that found that “92 SCMPr

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insight percent of transpacific shippers had to make supply chain adjustments.” I have a few issues with the article and study. Calling slow steaming “disruptive” makes it seem that conserving energy is wrong; it is not. Also, it appears that most shippers have not yet realized that they need to prepare supply chains for expensive oil—making them more energy-efficient and less susceptible to oil price increase while reducing carbon-emissions to boot. Moreover, because slow steaming is also a “green” program, the indirect implication from the report and coverage is that being green is wrong, too.

Oil Prices Climbing, Albeit Erratically

Under expensive oil, slower supply chains, emphasizing more energy-efficient modes, will be favored.

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Exhibit 1 is an updated version of a chart I’ve shown before that depicts the nominal and “real” (i.e., deflated) price of oil since 1974. As the chart shows, the real price of oil has been erratic. Yet for the past seven years it’s been climbing, following the end of the 17-year Era of Cheap Oil. As I write this column, the price has been hovering around $100/barrel. By contrast, during Cheap Oil prices ranged from $20 to $30 per barrel. So over the past 7-year period, we’ve experienced (on average) a 300 percent increase, after adjusting for inflation.

I do not adhere to the premise that the world is reaching or has reached a peak in oil output. But whether it has peaked or not isn’t the major concern for supply chain managers.

It is more about price than potential oil scarcity. Daniel Yergin, author of a Pulitzer-Prize winning book about the history of oil and the industry, was quoted in a recent Boston Globe article as saying that “in 2030, most forecasts still show oil, gas, and coal being primary energy resources.” So until 2030, oil will still be the energy source of choice for supply chains.

Yergin also states that “there is kind of a floor under oil prices, around $60-70” deriving from cost structures. This supports the view that there will be enough oil until 2030, but that the price will continue to rise from trends in both demand and supply. On the demandside, less-developed countries are using more oil to fuel their economies, which will grow faster than developed countries. (Case in point: in 2010, China’s energy consumption and net oil import levels reached that of the United States.) On the supply-side, easy oil sources are drying up. Going forward, oil increasingly will be extracted from costlier sources, such

as from deep-water drilling, shale oil, and tar sands. Thus, as demand goes up and extraction costs increase, prices will naturally rise.

Oil Efficiency Programs If you have not already done so, you need to start aligning your supply chains to rising oil prices. To cite just like slow steaming, rather than viewing them as disruptive.

Carefully evaluate these four main opportunity areas for oil savings: 1. Substitute Plastics-Based Materials.

For decades now, manufacturers increasingly have turned to plastics for use in their products. Under expensive oil, other materials will need to replace plastics.

2. Reduce Plastics-Based Packaging. The use of plastic, shrink-wrap, and plastic-based composites to package and distribute goods also has been rising. Expensive oil will favor replacing these types of packaging with other materials such as glass, metal, and paper.

3. Source Closer to Product Consumption.

During Cheap Oil many manufacturers justified off-shoring and sourcing from distant countries to meet domestic demand. Expensive oil means some supply lines will need to be shortened. Domestic as well as near-sourcing will become more favorable sourcing alternatives.

4. Revise Just-in-Time (JIT) Programs.

Many JIT programs were implemented during Cheap Oil when transportation costs were relatively inexpensive as compared to product values. The use of faster transport modes led to faster supply chains and significantly shortened cycle times. Under expensive oil, slower supply chains, emphasizing more energy-efficient modes, will be favored. Ocean will be more favorable than airfreight. Similarly, rail/ barge will be more favourable than truck. And truck will be more favorable than parcel.

Companies will need a long time to evaluate these areas of opportunities and develop programs to capitalize on them. Recall that it took almost 20 years to evolve supply chains during the Cheap Oil Era. So the sooner shippers start revising their supply chains in light of the new oil realities, the better. The benefits initially realized from Cheap Oil will evaporate as oil prices rise. Most damaging, clinging to a Cheap Oil supply chain strategy over time will severely handicap your company’s competitiveness.

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Risk management in Supply Chain:

Securing The Future

Focus on operational efficiency and cost optimization has been a strategic priority in most companies and is helping corporations lower the cost of manufacturing. Cost reduction efforts, however, often outweighed other strategic priorities.

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

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hile Outsourcing, Lean Manufacturing, JIT etc have proved to be some of the best business strategies to help minimize costs and free the leaders to focus on core ompetencies, these strategies have also stretched Supply Chains to its breaking point.

There have been some events in recent past like — Japanese earthquake and tsunami, the floods in Thailand and sub-prime crisis, which have disrupted businesses and hence supplies across globe.

Closer home, many of us would remember how port strike at our biggest port had crippled movement of goods for some time.

So were agitations in various locations which were driven by local issues.

There have been other concerns too which come from non-compliance from any

partners from supply chain, regulations on End of Life treatment for products etc.

Current supply chain fragilities are not just related to emerging risks; they are as much a result of supply and network design strategies as they are driven by a limited integration of risk management into supply chain management.

While traditional supply chain risk management allowed companies to deal with the most well-known supply chain concerns, these and other concerns, can be addressed only through a more formal management of supply chain risks. Managers need to rethink about their operative model to define an optimum balance between financial efficiency and control over the supply chain.

Surprisingly, most companies do not have a risk function in the supply chain, which would review risk appetite and risk

column tolerance through the supply chain, to take action to address specific risks the company could not bear.

Risk management should begin with mapping n External

risks – examples could be Demand related (fluctuation, seasonality etc.), Supply related (any form of disruption, constraints on quantity etc.) and environmental (any event beyond our control like earthquakes, blockades etc.) n Internal risks–These would include risk associated with various processes and controls including IT infrastructure.

And as a step 2, have mitigation strategy in place depending on likely damages these risks can impact business adversely.

Best practices are always to be shared for collective gain. Here are few in the area of risk management: Indentify Unique elements of supply chain > They could be in terms of single sources, monopoly service providers and even geography (Excessive dependence of imports from China). Gaining visibility and traceability into this part of supply chain, is crucial to manage risks and to reduce the likelihood of an adverse event.

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Control information flow and access within the supply chain > Access control, SOD (Segregation of duties), authorization and many such elements are becoming very important in current environment. It is critical to limit such access to only as much as necessary for those personnel to perform their roles and to monitor that access for supply chain impact.

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Supply chain risk can paralyze most supply chains, successful companies break the risk spiral and restore confidence throughout the organization.

Make people in supply chain risk management aware of risks > A strong supply chain risk mitigation strategy cannot be put in place without significant attention given to training personnel on supply chain policy, procedures and applicable management, operational and technical controls and practices.

Whether it is use of some external drives on PC or use mails to transmit confidential information or use of Group IDs for common tasks – each has element of

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risks which have to be dealt with through awareness and training.

Set up surveillance / defense mechanism> Even though adequate care is taken during design to deliver robustness in security, quality, safety, diversity etc. it is important to have ongoing check during creation, testing, manufacturing, delivery and sustainment of the all Supply Chain elements throughout its life. This is significant today since business environment and impact of technology is an ongoing change and continuous review is best to reassure ourselves to continued well-being.

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Manage disposal and final disposition activities throughout the system or element life cycle> Elements, information and data can be disposed of at any time across the system and element life cycle. For example, disposal can occur during research and development, design, prototyping or operations/maintenance and include methods such as disk cleaning, removal of cryptographic keys and partial reuse of components.

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Estimate Financial impact: We have to be clear on the nature and extent of damage any risk can do to business and today many software tools are available to simulate these situations/ estimate damages. These tools work on several levels, first as an operational decision-making tool and also as a strategic risk management tool.

While supply chain risk can paralyze most supply chains, successful companies break the risk spiral and restore confidence throughout the organization. The benefits are much more than cost reduction and the reduction of chaos leads to increase in sales and market share, penetration to new markets, and speedy new product introduction.

Make sure that your organization has risk management strategy in place and enjoy the benefits of secured future.

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Feedback /suggestions /comments are most welcome on mail ID feedback_scmexcellence@yahoo.com

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Supply Disruptions

Understanding the Possibility and Severity of Impact

Geographic realities of the locations where your organization or your suppliers are distributed will be a major factor in deciding whether a tsunami, earthquake, tornado or flood can be a source for disaster or emergency. Shouvik Chattopadhyay discuss Cause and Effect of Supply Chain disruptions.

I Shouvik Chattopadhyay Assistant ProfessorManagement Institute of Engineering and Management, Kolkatta

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n the previous column we have left the Risk Assessment Table blank so as to allow organizations to put their own figures.

This will allow different organizations to classify different incidents or disruptions into “Emergency” or “Disaster”.

The first question that comes to mind reading the above paragraph is – Why do we need to differentiate a disruption into “An Emergency” or “A Disaster”?

The goal is simple – In case of an emergency, an organization needs to focus on control & mitigation whereas in case of disaster the focus shifts to rescue and recovery.

Based on the differentiation in focus ar-

eas mentioned above, it is clear and expected that the response plan will be different.

What is critical is identification of the disruption and classification on time to roll out the response plan, and in case of an emergency situation, keeping a tab on the shift towards a disaster situation.

Let us take a look at how “Emergency Situation” and “Disaster Situation” is described.

An “Emergency Situation” is a situation generated by the real or imminent occurrence of an event that requires immediate attention of emergency resources and the supply chain is capable of coping with the event.

column A “Disaster Situation” is a situation in which the supply chain is incapable of coping. It is a natural or human-caused event which causes intense negative impacts on people, goods, services, and/or the environment, exceeding the affected supply chain’s capability to respond.

Let’s check out an example to distinguish between an emergency and a disaster in case of supply disruption. Sinking of MOL Comfort can be termed as an “emergency situation” whereas the flooding of the industrial zones in Thailand or the tsunami in Japan can be termed as “disaster”.

From the two we can clearly identify that the destruction of a carrier that delays shipments becomes an emergency whereas losing out on a supplier base is a disaster if the supplier base is critical to your operations. Another way to identify emergency from disaster is the effect on your operations. If an organization can resume operations quickly though at an affordable higher cost for a short span of time and then go back to normal, the situation may be termed as emergency.

Whereas in case of disaster the effect is long term and operations normally come to a standstill and may actually result in closure of business also.

If however we take a sneak peek at history, “The infamous fire in a Phillips factory at Albuquerque”, we may find that what may be termed as disaster for one organization [Ericsson] may only be an emergency for another [Nokia]. That’s preparation, but the case may not be true for all situations.

For example MOL Comfort sinks. Two containers on the vessel are carrying an item both for you and your competitor. A container load is equivalent to 3 months production, and your supplier needs two months restocking time to begin production. Your organization buys 4 times in a year from this supplier. Your competitor buys twice a year from this supplier and twice from another supplier. They have an agreement for emergency restocking with the other supplier. It is clear from the case that for one company the situation is an emergency and for the other a major disaster.

Shall a disruption be designated as an emergency or a disaster?

In the previous column, we have seen that natural disasters have the biggest effect on the supply chain and are the most major cause for a supply chain disaster. But will all natural disasters be termed as disastrous for your organization.

Toyota took six months to recover from the tsunami, failed to launch two new models on time and had an estimated production loss of over 140,000 vehicles. Was General Motors affected? Was the production of

A supply disruption becomes an emergency or disaster based on the capability of the supply chain to cope with the disruption. If the supply chain can resupply downstream after a disruption, quickly and at an affordable higher cost then we have an emergency situation.

But why an emergency situation for one company becomes a disaster for another?

Can the same disruption be emergency for one item and disastrous for another?

For example MOL Comfort sinks. One container on the vessel was carrying fifty items for your organization – 500 pieces of 48 items and 2 machines with the machines taking up 90 per cent of the space. With availability at the supplier end, the 48 items may be resupplied by airfreight. So it is an emergency situation.

Can your supply chain resupply the machines quickly and at an affordable cost? Will you consider it an emergency or disaster situation for the machines? If they are BTO with the built time around 90 days and the cost very high and it will take 6 months to get the insurance payment cleared and the machines are required for launching a new product line ahead of your competitors?

Where is your organization placed in the Risk Assessment Table?

Sinking of MOL Comfort can be termed as an “emergency situation” whereas the flooding of the industrial zones in Thailand or the tsunami in Japan can be termed as “disaster”.

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Geographic realities of the locations where your organization or your suppliers are distributed will be a major factor in deciding whether a tsunami, earthquake, tornado or flood can be a source for disaster or emergency.

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computers, tablets and anything that uses hard drives affected? When Thailand was flooded was Toyota or General Motors or most organizations affected?

Geographic realities of the locations where your organization or your suppliers are distributed will be a major factor in deciding whether a tsunami, earthquake, tornado or flood can be a source for disaster or emergency.

If your supplier or production unit is located in Japan, your worry will be earthquakes and tsunamis whereas if it is US Coastal areas you should worry about tornadoes and typhoons. If your supplier is located outside Bangkok make sure to check for severe rains.

My organization and my immediate suppliers are spread out in areas that are not affected by natural disasters. Should I still need to worry?

Yes, if the original supply sources are located in areas that are affected by natural disasters. For example, General Motors (India) based in Halol, Gujarat, India sources its power-units from AVTEC Ltd, Pithampur, Madhya Pradesh.

So for General Motors (India), they are apparently safe when it comes to having AVTEC Ltd as a supplier. But a major part of the components being used in the power-units are imported from Japan. Does General Motors (India) need to worry?

In the previous pages we have seen the distinction between an emergency situation and a disaster. We have also seen the possibility of the same disruption having different effect on different supply chains as well as on different products.

I have also mentioned that in case of an emergency situation, a critical eye has to be kept on possibilities of an emergency situation turning into a major disaster. Through a real life incident we will find out how an emergency situation quickly turned into a disastrous situation and how preventive or mitigation measures helped avoiding a complete disaster.

The case relates to the time when I was

handling the western hub warehouse for ITC Foods Ltd as a Warehouse Controller for TAKE Solutions Ltd. There was continuous rain for 5 days and the Warehouse Compound outside Kalher, a village near Bhiwandi, started to get water-logged with the water standing at 2Ft. On the 6th day the water started to rise with speed and by noon the water level had reached 4FT. By the evening of 7th day the water was at the level of the loading bays at trailer height. From 8th day onwards the compound remained inaccessible for nearly two weeks.

The above case makes it very clear how an emergency situation became disastrous in a quick span of time. A preventive action of evacuating the stocks standing at 450 tons of food items was undertaken from 4th morning after checking out the weather forecast for the week and past history of flooding in the area. Thankfully with the tremendous support from the labor force and transporters the damage was limited to `1 million. This action also ensured that the general public never came to know about the severity of the situation that engulfed the area.

In the above case study, from the 8th day, the situation in the warehouse compound and adjoining areas turned to a disastrous situation. If the evacuation of food items would not have taken place, it may have turned out to be a disaster situation for ITC Foods Ltd affecting its sales dramatically.

In the above case again, if the retail stores in Mumbai had sufficient space to keep large stocks for ITC Foods Ltd, there would have been negligible effect of this flooding. But if they were operating on minimum stock with a replenishment schedule every 3 days, then this flooding would have ensured a stock out situation for at least 20 days if the mitigation plan would not have been executed.

Similarly for organizations running on JIT or minimum stock basis, even a small disruption can have a severe effect. It may not be feasible to spend `50,000 to fly in items worth `5,000.

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

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

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

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

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R e v e r s e istics

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Impacting the Bottom Line 16 SCMPr

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feature

The art of management is the ability to divide management time optimally between day-to-day operations and ensuring future growth. Unfortunately, management spends more time in managing daily operations than strategic planning. Traditionally, firms needed to be able to offer the right products and services at the right time, at a competitive price. Increasingly, customers expect the firm to handle returns quickly and efficiently. This is what reverse logistics is all about. Reverse logistics is more than reusing containers and recycling packaging materials. It includes processing returned goods due to damage, change in customer preferences, expired goods, seasonal variation in demand, restock, salvage, recalls, and excess inventory. It can also be stretched to cover recycling programs, hazardous materials, disposal of obsolete goods, and asset recovery. Team SCMPro takes a look at the emerging field of reverse logistics and what it holds for the future.

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he Council of Logistics Management defines Reverse Logistics as “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.” More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal.

Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics.

Quite a number of sectors use reverse logistics brilliantly. The e-commerce industry has a fairly robust return policy. The automotive sector and the electronics sectors too are advanced users of reverse logistics. Firms can derive a number of benefits - both tangible and intangible - from their Reverse Logistics program. For one, firms are able to call back defective equipments and parts which can either be salvaged or refurbished and thus reclaim some value out of the defective parts. The automobile industry has a number of instances of such product recall.

Second, it facilitates the collection of unsold and obsolete equipments

from point of sale, which encourages the distributors and stockists to confidently buy stocks from the firm, knowing that they can always return unused inventory avoid losses. The Pharma sector and the packaged foods sector are prime examples of this. Third, packaging and defective materials can be collected and recycled, generating scrap value for the company.

India has been a late starter in reverse logistics. Indian firms have recognized the potential of Reverse logistics only recently, and are at a nascent stage but, expected to grow rapidly in the future. Many Indian firms have started implementing a Reverse logistics program as apart of their marketing strategy.

The Challenge of Reverse Logistics As compared to Logistics–the process by which material reaches its consumer–reverse logistics is more about sending things back to the firm. The product may be defective, package may be broken and there may be only one or two units making its way back! No full truck load. Not even half a truck.

The challenge for the firm is to make this process simple and cost effective.

Most products, require additional support for customers to make full use. This may include anything from routine mainte-

nance and technical support to customization and training to realtime inventory management and state-of-the-art channel support.

This is not a new phenomenon, yet, many organizations have not made a transition to providing full life cycle support. Thus, an organization’s value-added services need to be focused on the total needs of its customers, and not merely initial installation and ongoing technical support. This requires a full focus on all of the pre- and postsales-related activities, including an easy way to recall, replace and return products.

Drivers of Reverse Logistics There are two major drivers of Reverse logistics–one is the rising chorus of sustainability. The other is the looming shortage of rare earth minerals. In a study by “Earth Audit” by David Cohen –New Scientist–May 2007, the supply of some of the rare earth minerals will be exhausted within a decade or so. This shortage will force manufacturers to examine their entire supply chain to uncover ways to reclaim, not only the parts, but the minerals and metals as well. This lends urgency to the need to reclaim these from the end of life products. According to the Environmental Protection Agency, for every million cell phones we recycle, 35,274 pounds of copper, SCMPr

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Reverse Logistics Pipeline

Source: Greve Davis

772 pounds of silver, 75 pounds of gold, and 33 pounds of palladium can be recovered.

The changing supply chain landscape makes adding a strong, state of the art, reverse logistics offering a survival move, not just a strategy to add incremental revenue. Add to this the rising chorus of sustainability, Reverse Logistics will move out from a nice to have to a essential service for a 3PL player.

Impact on Bottom Line According to a study by international consultants Greve-Davis, “Many executives compare the amount of money spent processing returns to other supply chain activities and conclude that investing resources elsewhere would yield greater results. Therefore, they just focus on trying to reduce the cost of returns processing. In reality, reverse logistics costs are less than 4 per cent of total supply chain costs for most companies.

And while maximizing efficiency is always important, reverse logistics can also provide a wide variety of opportunities for improvements, from customer service and returns processing to supplier relations and an unexpected revenue source.”

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The benefits of Reverse Logistics are: Boosting Top Line: Returned products can add to a firms top line if the firm can refurbish and sell them. The Indian market is seeing this in a small way–the recent TV commercials indicate the emergence of a refurbished market. From refurbishing, repackaging and reselling to parts reclamation and recycling, returned products are often untapped sources for revenue. With the secondary, discount market for products emerging in India, there are reasons to think about returns as revenue opportunities.

According to Consumer Electronics Association data, one of the starkest examples of secondary market opportunities lies in the mobile phone industry. Every year, there are about 1.2 billion cell phones sold worldwide. The return rate for mobile phones in 2010 was 8 per cent or 96 million phones that weigh about 16,000 tons. And at a conservative estimate, it can add atleast USD 20 Million to the manufacturer’s topline!

Protecting the Bottom Line: As fears of environmental damage and the hazards of e-waste mount, we will see the emergence of strict penalties on firms who do not meet the environment protection standards. The

FDA, the Consumer Product Safety Commission and other state and federal agencies in the USA have some stringent conditions and penalties for violators. Apparently, the largest fine imposed as on date is USD 500,000/on an e-waste handling firm. Soon reverse logistics will be needed to protect botton lines from fines!

Gaining Customer Trust: According to a nation-wide survey conducted in the USA, 95 per cent of customers said they will not buy from a company if they have a bad returns experience. This, in part, explains why companies considered best-in-class in reverse logistics enjoy a 12 per cent advantage in overall customer satisfaction over their competition. We in India are still to come to grips with returns policy. But we expect customers in India too will similarly avoid buying if they face a bad returns policy!

End of Life Benefits: Knowing what is returned and where it goes makes it easier for companies to evaluate returned stock for possible refurbished sales. There are also other beneficial by products to disposing of products, such as avoiding excess inventory carrying costs, minimizing taxes and insurance and managing staff levels.

Maximize Recovery Rates: Mishandled or completely misplaced returns affect the efficiency of any reverse logistics process, but also means that products could end up being a total loss for a company instead of an opportunity for resale or a spare parts resource.

The opportunity from a well developed Reverse Logistics program is manifold. It enables firms take advantage of secondary markets and/or reclaim material from the returns. Reverse Logistics could provide manufacturers with ways to reduce the overall cost of manufacturing their products by providing lower input costs, increase revenue from new sources and improve customer service to boot.

ClubSCMPro ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.

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Feature

A closer look at “Reverse Logistics” As part of our REVERSE LOGISTICS feature, SCMPro caught up with Srinivas Sattiraju, CEO, Delex Cargo India Private Limited. to throw some light on the current state and what the future holds for the industry.

What are the major trends, developments that supply chain managers are facing concerning Reverse Logistics?

With increase in consumer awareness and preferences and the remote buying habits that are growing, the industry is witnessing volume/incident growth in reverse logistics. Consumers have little time to repair and re-use. Besides, the launch of new models by the manufacturers more frequently makes the consumers dump old ones to be taken care by companies offering buy-back schemes etc.

New product and technology especially TV and Mobiles reaching rural markets pose a big challenge to the reverse logistics, unlike urban consumers who replace the product with a new one, the rural consumers prefer to get them repaired. This raises challenges in getting the product to the repair center and returning it back to the consumer.

What are the major challenges in setting up a reverse logistics program?

Srinivas Sattiraju CEO, Delex Cargo India Private Limited

S

rinivas Sattiraju is a seasoned Supply Chain professional with over 2 decades in the area of Supply Chain Management. He has operated at various levels throughout India with great understanding of business environments across Asia Pacific.

Having developed skills in identifying opportunities and converting them into successful business models, Sattiraju has successfully handled Design, Implementation & Operations of Distribution Strategies, Component Hub Management Solutions, etc. He is exposed to both Push and Pull supply chain processes across FMCG, Consumer Durables, Electronics and Automotive Industries.

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Transit documentation issues, effective coordination and ensuring visibility across a large geography and dealing with multiple agencies pose major challenge. Besides, orientation of the entire environment within and outside the company is crucial to implementing the “Reverse Logistics Program”.

What are the necessary components of a successful reverse logistics program?

Policy clarity and need for reverse logistics should be based on monetary saving or improving financial performance of the company. Well thought through process, steps and alignment with all stake holders before implementation, along with top management’s direct sanction and involvement,

Feature are some of the prime components of successful reverse logistics programs .

According to you, which industries are prime candidates for reverse logistics? Are you seeing this happen in reality? If not what are the challenges?

Consumer Electronics (CE), Consumer Durable (CD) companies, Technology Hardware companies that provide warranties and extended warranty covers and E-Commerce companies are prime candidates for reverse logistics. In case of CE, CD and Tech H/w companies, reverse logistics programs are going on for quite some time and they are experiencing reasonable amount of success in that. With regards to reverse logistics in E-Commerce, the processes have to mature. Some of the challenges associated with E-Commerce reverse logistics could be around transit documentation and the maturity of consumer behavior itself.

“

Is it worthwhile building a separate practice for reverse logistics or can the same department handle it?

It has to be a separate practice for better results.

Companies that I know of and are running successful reverse logistics programs are having teams that are not part of overall forward supply chain teams.

The Key challenges is the transit documentation that has to accompany the goods when picked up from the customer. One needs to setup complex processes of generating documentation that clears various check-posts on its return.

If such reverse logistics collected items are to be reexported back then the documentation and permissions process is more complex. This needs an effective coordination by the reverse logistics team with all concerned internal as well as external stake holders.

The Complexity of reverse logistics increases when it extends beyond a company’s own service organizations to third parties like contractors, subcontractors or distributors that participate in aftermarket support. How can you make this process simpler?

Orientation of the entire environment within and outside the company is crucial to implementing the “Reverse Logistics Program“

Is outsourcing an option for Reverse Logistics? What are the advantages and drawbacks of outsourced reverse logistics?

By nature, “reverse logistics” has a huge component of outsourcing. Apart from planning, which is the core function of the principle company, the entire job of picking up the product and flowing it back to the company’s designated receipt point is to be executed through layers of outsourced partners. The outsourced partner engagement can either be direct or by a 4PL/3PL model. Due to complexity of the reverse logistics network’s spread/reach and the multiple states within India requiring different expertise, the reverse logistics teams have to depend on different players.

Reverse logistics needs to encompass the return of goods from the customer to the manufacturer, and sometimes from the manufacturer to the firm that made the component. What are the challenges here?

This can be simplified by roping in a 3PL or 4PL with knowledge and experience in reverse logistics.

Companies should devise an overall process by going through various verifications and checks and also setup a control tower structure that has participation from the company’s own service organization as well as 3PL/4PL’s core team members. Besides, settingup KPIs for daily monitoring against set targets is the only way to make the processes simpler and operable.

Are there any skill- set challenges in reverse logistics?

How would you address them?

Most important is the experience and sensitivity of the individual employee towards the process of reverse logistics that he/she needs to effectively execute.

This comes only by thorough training. Past experience definitely helps. But being a niche processes, it is difficult to get readily trained personnel and one needs to invest in training and developing resources.

We constantly develop our people by exposing them to the opportunities of reverse logistics programs we run for our customers, besides rotating such trained manpower to our other operations’ verticals.

Over a period of time this help us in building a large team who would have undergone basics of “reverse logistics processes” and are ready for adopting to any specific process requirements.

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Driving Supply Chain Intelligence with the

Power of Analytics

Focus on operational efficiency and cost optimization has been a companies and is helping corporations

By Sudipta K. Sen, Regional Director – South East Asia, CEO & Managing Director, SAS Institute lower the cost of manufacturing. Cost reduction efforts, however, often outweighed other strategic priorities.

Driving Supply Chain Intelligence strategic with the power of Analytics priority in most

Globalisation has led to the transition from a local manufacture and sell model to a manufacture-anywhere and sell-anywhere framework. This makes the role of Supply Chain Management (SCM) more important than ever before. However, with this increasing horizon lobalisation has led to the of business, the number of contacts, touch-points, point of sale information, market statistics, customer feedback, etc. is also increasing. This leads to the creation of massive amounts transition from aoflocal manudata. Over the past few years, businesses have been overwhelmed with the amount of and are sellthemodel to a structured and unstructured data created. At the vanguard offacture this transition, organisations who have embraced analytics to derive meaningfulmanufacture-anywhere insights from data and and make decisions based on facts and insights.

G

sell-anywhere framework. This makes the

Supply Chain Intelligence solutions deliver a critical advantage to organisations by helping roleinsights of Supply Chain Management (SCM) them turn data into knowledge and develop unique about their demand patterns, supply networks, operations and customer servicemore requirements.

It provides important than organisations ever before. However, with the ability to combine data from other multiple sources, such as transactional and with this increasing horizon of business, the operational systems, to provide more comprehensive analysis and reporting to better meet

Sudipta K. Sen Regional Director – South East Asia, CEO & Managing Director, SAS Institute

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number of contacts, touch-points, point of sale information, market statistics, customer feedback, etc. is also increasing. This leads to the creation of massive amounts of data. Over the past few years, businesses have been overwhelmed with the amount of structured and unstructured data created. At the vanguard of this transition, are the organisations who have embraced analytics to derive meaningful insights from data and make decisions based on facts and insights.

Supply Chain Intelligence solutions deliver a critical advantage to organisations by helping them turn data into knowledge and

develop unique insights about their demand patterns, supply networks, operations and customer service requirements. It provides organisations with the ability to combine data from other multiple sources, such as transactional and operational systems, to provide more comprehensive analysis and reporting to better meet corporate business requirements. The result is improved efficiency and effectiveness of the overall supply chain, increased profits and higher customer satisfaction.

Manufacturing companies are gradually realising the importance of increasing flexibility of operations and responsiveness to demand. Efficient supply chain intelligence can provide a competitive advantage. Traditionally, organisations have been leveraging analytics to describe past problems and derive insights for reaching to a solution.

However, in today’s dynamic business environment, it is vital that organisations turn proactive in terms of managing supply chain.

column Techniques such as predictive asset maintenance can help organisations in predicting the failure of an asset (for instance a machinery) even before it fails. This helps in reducing downtimes, optimising maintenance, enhancing data visibility and increasing efficiency.

Another important aspect that affects a typical modern supply chain organisation is the constant increase in customer communication channels, diverse buying preferences and growing popularity of digital interaction platforms. A vital element in modern-day supply chain is demand. Organisations that are successful in consistently delighting their consumers, plan their manufacturing and logistics based on future demands. For instance, if a car manufacturer knows in advance, the demand for a particular model of vehicle of a specific variant in a given colour for a particular region in a specific time-range; it becomes easier for the manufacturer to deliver on time to customers, plan sales and marketing accordingly and reduce efforts and costs.

Predictive analytics empowers organisations in planning manufacturing, logistics, sales and marketing based on future demand, forecasting trends, proactively managing resources and squeezing every bit of profitability from operations.

While demand channels and number of purchase points are constantly evolving, organisations have been gaining success through the SKU route – different size, shapes and variants to cater to different needs. However, this increases the complexity in inventory management.

Poor inventory management can lead to stock-outs, excess inventory of finished goods, etc. As the number of SKUs, customer profile, channels, distributors, etc. increase; the amount of data that’s being created at every instance increases exponentially. Supply chain analytics can uncover hidden insights from this goldmine of data in order to accurately predict the propensity of each SKU to sell in different markets and at different times. Once organisations have such knowledge, they can take measures to reduce stock-outs, prevent excess inventory of finished goods and plan for replenishments.

The key concerns of Supply - Driven Companies most supply-chain professionals have been Supply – demand uncertainty, Replenishment Inventory Dema nd Optimization Rough-cut pressure to reduce lead Capacity Planning times and inefficiencies Operati Supp in inventory manageonal Ex cellence ly ment. Many organisations are proficient at using ERP/SCM systems to collect large amounts of data, create reports and automate day-to-day Supply transactions. However, Driven the key performance and Balance efficiency issues, menSynchronize Demand and Supply tioned earlier, cannot be fully address with historical reports alone. Supply Demand - Driven Companies Chain Analytics can give ly organisations a new, forConsensus Supp Demand Planning ward-looking viewpoint Shaping that allows them to not Demand Sensing only understand the past nce and celle and monitor the present, Dem er Ex m o t Cus but also predict future outcomes. Analytics can help organisations enhance the value of their previous ERP/SCM inDemand vestments by integratDriven ing data from multiple Balance transactional systems Synchronize Demand and Supply with downstream consumption data as well as upstream supply data, Market- Driven Companies removing inaccuracies, Demand Supply and providing forwardOperational Excellence Customer Excellence looking analytical insights. Forward-looking insights, can empower Optimized organisations with the S&OP ability to understand deMarket mand patterns, discover Driven trends, optimise supplier Demand Supply performance, identify Driven Driven the drivers of costs and Balance revenue, reduce finished Synchronize Demand and Supply goods inventory, shrink stock-outs and improve forecasting accuracy; allowing them to be proactive, innovative and agile in a rapidly changing business environment.

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FDI in Retail

Boon or Bane for Tier-2 and

3 Player…??

W

V G Venkatesh Faculty- Supply Chain Management and Logistics Symbiosis International University, Pune

hile the government is pondering over on entry of FDI in retail business, many of our domestic business owners are highly perturbed about their survival in the competition. Many of the policy makers argue about the survival of the fittest, the reality from Tier-2 and 3 cities have not reached them. FDI is going it to be allowed for the companies that comply the requirement of the sourcing norms put by the government i.e. 30% sourcing has to be done from SMEs. Big retailers have already refused and dominated the government to revise the sourcing norms. Also, it has been reported that many foreign retailers are pressurizing the Indian Government to eliminate this condition as they do not see India as a potential sourcing center because of bureaucracy, wide spread business activity and cultural issues. If these sourcing norms are going to be implemented in a strict manner, would it really be helpful for our producers/ retailers in Tier-2 and Tier-3 cities.

Answer is YES or NO. On the whole, FDI in retail seems

to be only in favor of investment in metro cities. It does not have the inner clause for promoting the retail environment in Tier2 and 3 cities.

The current form of the FDI policy is not really going to help our domestic industry to evolve: It helps only the big retailers to dominate the Indian producers and their cultural and business sentiments developed through centuries. With prices going up, dollar rates fluctuating, on the prima facie, any business with the foreign players is going to be a lucrative. But in the long run, sustainability is the big question mark.

Foreign players will not have any second thought to roll back their business, if it’s not successful in any form.

But for Indian business owners, it is the question of survival. With the experience from International business, we are sure these players would not pass technology and other operating rights in the complete form to the Indian players. Instead we are going to become only the adopters of their systems. We may loose our originality in the business techniques and other product development capabilities, which are highly unique to Indian sub-continent. Government should consider FDI by promoting the business by stipulating the quantity, price and also to operate “initially a major share” from the Tier2 and Tier 3 cities for a defined period.

They should give a direction to invest min 50% of their profit to the SME business development in India. The policy should promote the joint Ventures with SME and FDI partners with the major stake to be kept by SME partners. Further, big task is to

define “SME” from Indian business point of view.

While contemplating on the disadvantages, we should not forget the positive image of FDI. Position of India in the global market will certainly go up. Our SME players would look for the good supply chain practices adopted worldwide; they can easily adapt them to Indian environment. Investments and ideas from FDI partners would definitely increase their competitiveness and access to the other business sectors.

Key Performance Indicators of the business of Tier 2 and 3 cities are not always well defined, and with FDI entry, hopefully, it will be redefined and strict business performance follow up will be done. Tier 2 and 3 centers’ business is always centered on the producer dominated environment, with FDI around, it is going to be a change in their business policy i.e. from Producer to Customer oriented. This is expected to be a highly positive change expected from FDI business.

While dense fear has been expressed about FDI, we recommend wait and watch approach, as there cannot be any sharp prediction on the future. There are ‘ifs’ and ‘buts’ in every business. But central government should have the strong policy, not to bend down to dominating foreign firms. The stricter norms should be adopted to protect SMEs; no doubt our country’s economy is highly dependent upon the SMEs which are dominant in Tier 2 and Tier 3 cities.

The views expressed by the author are purely personal

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lead story Lead story

Automotive

Logistics

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lead story

From the previous issue, we at SCM Pro have been looking at specific verticals in logistics industry. For this issue we chose the Automotive Logistics sector.

T

he Automotive industry is the corner stone of the economy. They lend wheels to trade. And the industry that lends wheels to this sector is the logistics sector. Unfortunately, the logistics sector is rarely invited to sit at the table when manufacturers get together to plan their future. This is a very sorry state of affairs.

It is a well known fact that the logistics cost in India is very high–with estimates at 13% to 15%, depending on the point of view. This points to a very inefficient logistics operation, which does not add value to anyone.

The automobile companies worldwide are shifting their attention towards understanding and implementing extended supply chain management that integrates the product, process and information flows within and across organizational boundaries. n such a scenario, there is a pertinent need to understand and evaluate existing supply chain contribution, and benchmark them with the best practices within the industry to bring in improvements in the existing system.

We bring you three separate articles and our Guru Speak–al on Automotive Logistics.

We start with a look at the “Future of Indian Automotive Logistics” Automotive logistics have a tendency to throw surprises.

The recent global down turn has thrown open some new opportunities. One of the defining changes of the new world order is the prospect of changing the stock-push approach, building vehicles against a forecast and selling from stock, in favor of a stock-less build-to-order order fulfillment strategy. This poses quite a few challenges to the automotive logistics industry. To meet the requirement of made to order cars, automobile manufacturers will require flexible and responsive component supply. This will have wide ramifications for the logistics operations.

We next take a look at the aftermarket logistics in “After sales market–Making the Difference the Customer will Cherish.” The automobile industry has always had a keen focus on the original equipment supply chains

investing in creating operating efficiencies.

However, in stark contrast, the automotive aftermarket ‘demand chains’ under-perform, are inefficient and suffer from a lack of investment, even though they’re often extremely profitable. An automobile is a high value sale. Customers expect their vehicles to keep moving. In the unfortunate circumstance of repair, the service centre needs to ensure that it is back on the road with minimal disruption. In such circumstances, after the sale is as important to the firm as before the sale – high-value, complex products such as vehicles, electronic or household devices must also continue to function without problems over the long term and conform to current standards. Especially for repairs and maintenance, fast delivery is an obligation. Customers expect that the part be sourced and delivered within a 24 hour window. And the automotive logistics segment is gearing up to deliver on the expectation.

The final article deals with the changing role of the LSP in “Stop Being a Sourcing Robot”–from the provider of a point to point transportation solution to the true blue 3PL operators. For a long time, Logistics service providers were considered a cost center–someone whom you hit on for reducing costs, but rarely invited to be a part of the strategic planning team. By and large there has been very little change in this situation.

However, the automobile manufacturers have moved a step ahead–they are at the forefront of outsourcing their logistics. However, the outsourced partner is treated as a cog in the distribution chain. Leave aside 4PL, we are still not reconciled to an active 3PL role for the logistics sector. The common approach is –give us your body, leave your brains behind.

However, a strong LSP partner can help the manufacturer optimize their supply network and lower costs at the same time. It is high time the industry recognizes that LSP’s are not mere robots moving goods from point to point–they can be a strategic input.

We hope you enjoy these perspectives.

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Lead story

Future of Indian Automotive Logistics Automotive logistics have a tendency to throw surprises. The recent global down turn has thrown open some new opportunities. One of the defining changes of the new world order is the prospect of changing the stock-push approach, building vehicles against a forecast and selling from stock, in favor of a stock-less build-to-order order fulfilment strategy. This poses quite a few challenges to the automotive logistics industry. To meet the requirement of made to order cars, automobile manufacturers will require flexible and responsive component supply. This will have wide ramifications for the logistics operations. Girish V S examines the future of Indian Automotive logistics industry.

A

utomobile manufacturing is like a well choreographed ballet–with around 50,000 parts from various parts of the world being transported to a central facility, and the finished product making its way to the dealership.

And the choreographer in this case is the logistics industry. The Indian Automotive Logistics industry is poised at an inflexion point. The growth of the past few years has slowed down and the industry is faced with the challenge to meet the higher expectations of the customer at lower price points. According to a report by Research and Markets, global and Indian auto

and auto components industry is increasingly focusing on innovative supply chain and logistics practices to balance costs, improve service levels and increase product diversity amid the growing global competition. According to a 2008 report by Cygnus, (alas, the availability of data in India is a big challenge!) in India, logistics cost in automobiles industry accounts for 2-3 per cent of sales whereas in auto components industry it’s around 3-4 per cent. Reverse logistics cost in Indian auto and auto components industry is estimated to be around 0.5-1 per cent of auto and auto components industry. About 90 per cent of the auto

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lead Story component Industry outsources their logistics requirement to 3PLs. The Society for Indian Automobile Manufacturers has projected an over all growth of 6 per cent to 8 per cent for the auto industry in the financial year 2014.

The August sales for the automobile sector saw a surge.

And as the sales of the industry increases, the logistics industry too picks up. However the going will not be smooth. The sector has to evolve if it has to keep up its growth. Changing customer preferences will continue to exert pressure on the sector. And there are signs of disruptive consumer preferences emerging.

The automotive supply chain is undergoing a major transition across the globe. The traditional vehicle supply systems, based on Henry Ford’s mass production paradigm or “push” logic, is proving less competitive as customer preferences change. This traditional “stock push” supply model sources the majority of its requirement from existing finished goods inventory. To meet the demands of this model, manufacturers will hold stock at the most expensive point in the supply chain –the finished goods stage! Another issue is that it is expensive to shift this inventory across locations.

One of the major issues with the make, stock and sell policy of today is that automobile dealers will have to stock larger numbers of the same model with different color and feature combinations to meet the tastes of the customer. To add to it, customers are becoming impatient–they want quicker delivery, with the feature list of their choice. If the dealer does not stock it, then the customer shifts to another dealership. It is reckoned that in the Mecca of automobile industry–the USA–the dealerships stock as much as 100 days of sales as inventory. The figure is 65 days for UK, 55 days for Europe. Sadly the figure is not available for India. However, given the fact that some models have a waiting list, this may not be all that high in India.

If the automobile industry has to move to the demand pull based manufacturing strategy, they need to pay special attention to the logistics sector. Given the trajectory of the evolution of the automotive logistics industry, and considering the need to accommodate changing customer needs and expectations, the industry needs to shift from traditional relationships to long-term sustainable partnerships. Traditional relationships between logistics service providers and buyers are often characterized by: n Outsourcing of individual operations or functions n Lowest cost approach without considering value and total cost n Regular changing of providers regardless of experience and investment required 30 SCMPr

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n Mis-alignment

of the manufacturers and customers expectations n Taking a very shorter term view of the relationship However, the need of the hour is for deeper partnerships, based on long term mutually beneficial terms.

This means that we need to define the contours of a long term relationship. The features that differentiates long term sustainable partnerships from the transactional outsourcing models of the industry needs to be understood. These could be: n Comprehensive logistics services and solutions n Robust IT systems that enable smooth data flows n 4PL Services n Innovation n Aim at a reduction in total cost and not just operating cost n Wide geographic coverage n Risk management capabilities

The Current State of the Sector India has been a laggard in the development of its logistics sector. Studies have estimated that India spends around 13%-14% of its GDP on logistics. This compares poorly with similar spends in developed countries–the US is estimated to spend around 9.5% and Japan around 10.5 per cent of their GDP. However, it needs to be recognized that India has a lower GDP figure as compared to the US and Japan. Our absolute spends are still low. The sector is today nearly a decade behind when compared with global logistics industry.

Globally, the emergence of 3PL service providers has helped boost productivity of the industry it serves. This trend started in the 90’s. However, in India, 3PL services made their entry almost a decade later – in the early 2000. The 3PL service is still in a nascent stage with a overall share at the single digit level, although over it is reported that around 90% of the organizations use 3PL services in specific sectors like automobiles.

The Shape of Things to Come Given these pressures, the automotive logistics industry does indeed exhibit a few inter-connected trends.

These could be broadly classified as: Changing customer expectations – the end customer is getting increasingly demanding on the service levels expected–both for the product and the after-sales market. The move to customer demand pull models in manufacturing–like the Toyota Manufacturing–will force supply chains to be more flexible, innovative and collaborative. They will need to accommodate quick turn arounds.

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Lead story

Risk management – As geography becomes history, and as suppliers and customers spread out over wider geographic areas, supply chain disruptions become very critical. The tsunami in Japan affected the sales and service of Honda cars in India. Such disruptions inflict significant damage to the firms top and bottom line. Supply chains need to be able to identify such disruptions and be ready with alternate arrangements.

Technology – As the customer expectations change, supply chains will have to rely on technology to provide them with the data and information flows to manage the complex relationships and multi tiered stock points.

Global Supply Chains – as we integrate into the international markets and as India emerges as a alternate

manufacturing destination to the global players, the supply chain will need to gear up to go global – the focus will shift to collaboration and partnerships.

Multi-Modal – As a corollary to the globalization story, the supply chains will need to evolve multimodal transportation capabilities – and the associated skills needed to manage these logistics channels.

The KPMG’s Global Automotive Executive Survey 2013 throws some interesting insights into the importance of logistics and distribution as an area that will see investments. Along with improvement in safety, Logistics and Distribution has been ranked by 75% of all respondents as a prime area for investments. Given the complex nature of the supply chain, this will definitely not come as a surprise!

www.scmp.in ...live supply chain September 31 Industry Portal forSCM thePr Supply Chain2013 Professional

lead story

After sales market

Making the Difference the

Customer will Cherish The automobile industry has always had a keen focus on the original equipment supply chains investing in creating operating efficiencies. However, in stark contrast, the automotive aftermarket ‘demand chains’ under-perform, are inefficient and suffer from a lack of investment, even though they’re often extremely profitable. An automobile is a high value sale. Customers expect their vehicles to keep moving. In the unfortunate circumstance of repair, the service centre needs to ensure that it is back on the road with minimal disruption. In such circumstances, after the sale is as important to the firm as before the sale – high-value, complex products such as vehicles, electronic or household devices must also continue to function without problems over the long term and conform to current standards.

Especially for repairs and maintenance, fast delivery is an obligation. Customers expect that the part be sourced and delivered within a 24 hour window. And the automotive logistics segment is gearing up to deliver on the expectation. SCM Pro takes a look at the after market in automotive logistics.

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eclining sales, poor plant utilisation and strong pressure on costs may be the sadly familiar picture in the Indian automobile market. As the slow down bites, customers are postponing the purchase of new vehicles, making do with their existing one. This means that the service and parts demand will increase. One way manufacturers can ensure customer loyalty is to reduce the service time. While sales and production hurt, the supply chain industry is gearing up to meet the challenge head on. Replacement parts must be available everywhere and at all times.

A survey by TNT in Germany has some interesting insights. The study found that the average satisfaction performance per OEM was only 85%, with some down as low as 75%. TNT’s corporate account director for automotive, Nick Beard says that “it is generally assumed that significant inventory levels lead to end-user satisfaction, but that this is not the case. Though those at the highest levels of satisfaction, thought to be Daimler and VW, typically carry higher levels of inventory than the norm, poor performers, thought to include Ford and GM, cannot put their result down to poor inventory.”

A survey among the delegates to the Automotive Logistics conference in Bonn, Germany revealed that taking ownership of the aftermarket supply chain by either dealers or OEMs would be much more effective in delivering improvements than simply increasing stock levels. The survey reinforced the widespread view that after market sales are a significant contributor to dealer profits, representing an average 15% of their sales but 48% of their profit. By contrast new vehicles (56% of sales) and finance (3% of sales) each delivered 20% of dealer profits. Another internal study at Renault showed that a 10% reduction in the satisfaction levels of consumers of aftermarket services resulted in a reduction of 6% in new car sales. However, getting the same 6% increase in new vehicle sales from aftermarket performance required an increase of some 200% in satisfaction levels. Clearly after market sales is a profit making avenue for auto makers. And if the profits are in after market sales, supply chain efficiency cant be far behind.

The significance of the after market can be inferred from these two studies. While data on Indian market is scarce, the broad trend will remain the same – the percentages may change. These surveys reveal some interesting insights into after market logistics.

To realize after sales value, OEMs need to focus on strategic and core imperatives and subsequently make major changes to existing organization, processes and technology across the key areas of service parts and lo-

gistics, service support, revenue management and warranty management.

OEM after sales - related priorities Running an efficient after sales market requires some re-arrangement of organizational priorities. For one, it will require major changes to existing logistics networks – From carrying full truck loads, it will mean moving a single part on priority. The same processes that are used in bulk transport will not work – manufacturers need to think of a market of one.

The second major change is the integration of brands and accessories – firms need to put in the same care that is put into moving the finished product to moving accessories. The third issue is the complete supply chain planning - dealer through supplier. The part needs to move from the OEM manufacturer to the service centre. This calls for centralized inventory management and virtual warehousing – the ability to

New distribution channels internet, mobile, direct sales, ISPs etc. can be used to create additional services to increase dealer and customer loyalty. centrally co-ordinate the movement of products from the supplier to the point of consumption. The need of the hour is not a simple exchange of data, but a centralized and automated order management system that will integrate order placement with catalogue systems, allowing the service centre to place the orders directly with the manufacturer.

Of equal importance is operational excellence in the after market - referrals, direct shipments, return of defective parts. This may call for small shipments across multiple deliveries per day. Automakers in the developed world are moving to an assured same day delivery of orders placed in the morning!

New distribution channels - internet, mobile, direct sales, ISPs etc. can be used to create additional services to increase dealer and customer loyalty by supporting placement and promotion – the customer can browse through the newer accessories while getting the automobile serviced, thereby maximizing revenue generation.

SCMPr

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33

lead Story Another focus area for after market logistics is the enhanced dealer support within services processes – by increasing availability of information about the product, technical specifications and processes along the value chain – from the OEM to the wholesaler to the dealer right down to the franchised workshop or service point; enabling “first time right service” to improve dealer service profitability, increase customer satisfaction and reduce warranty costs.

In effect, the firms need to develop end-to-end supply chain performance monitoring capabilities and allow continuous improvement.

The biggest pain for a dealer is to lose a customer who is upset at the delay in getting the vehicle serviced

34 SCMPr

Parts Logistics A report by Accenture titled “Refocusing on the After sales Market” says that “For many years now, OEMs have focused on continuous improvement in logistics operations due to the fact that an effective and efficient footprint can at the same time reduce costs and improve service levels and customer satisfaction.

Nevertheless, it is not uncommon for dealers to cite parts unavailability for causing delayed service, customer dissatisfaction or loss of customer loyalty. It is also not uncommon to see OEMs increasingly implementing new parts ordering systems to enable better forecasts and timed parts availability or implementing initiatives to review distribution flows, transportation routes or warehouse locations. Performance monitoring is increasingly becoming a key enabler for continuous improvement.”

The biggest pain for a dealer is to lose a customer who is upset at the delay in getting the vehicle serv-

September 2013

iced. Parts logistics excellence is a relevant objective for most OEMs since it enables multiple opportunities, including: n Reduced Inventory costs n Lower distribution cost – both for in bound and outbound movement of parts n Reduced handling costs including warehousing costs n Availability and service levels improvement.

To run an efficient parts logistics program, automobile manufacturers need to design and implement complex transformation initiatives within the parts logistics space. This calls for leveraging a unique set of solutions, assets, experiences and competencies across the entire value chain.

The report by Accenture goes on to detail, the areas that are potential targets for improvement or optimization in the parts logistics space: n Implement dedicated processes and systems to optimize inventory and service levels, through integrated planning and demand forecasting. n Distribution footprint or flow analysis and implementation, with the objective of optimizing logistics costs maximizing trade-off between costs and service levels D ealer inventory management through dedicated system functionality and monitoring and support. n Reverse logistics analysis and implementation (remanufactured parts, claims, warranties, etc.) n Parts transportation planning optimization through dedicated unit providing analysis and monitoring capabilities to implement routes/ loads n Warehousing operation analysis and optimization n Integration of suppliers in logistic value chain (manage lots and lead time) n Logistics processes performance monitoring (key performance indicators (KPIs) and systems) After sales logistics or after market logistics can deliver superior profits to automobile manufacturers. The role of the Logistics Service Provider (LSP) ceases to be a mere transporter of products from point A to point B. The LSP has to integrate his proceses with the automobile manufacturer, the OEM supplier, the dealer and the service center in a seamless network. This means the LSP need to be in a position to assist the manufacturer reengineer the lobal logistics processes, including forecasting, procurement, warehousing and distribution, increasing the effectiveness and efficiency of the parts business worldwide, while also reducing distribution costs.

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lead story

Being a Sourcing Robot For a long time, Logistics service providers were considered a cost center – someone whom you hit on for reducing costs, but rarely invited to be a part of the strategic planning team. By and large there has been very little change in this situation.

However, the automobile manufacturers have moved a step ahead – they are at the forefront of outsourcing their logistics. However, the outsourced partner is treated as a cog in the distribution chain. Leave aside 4PL, we are still not reconciled to an active 3PL role for the logistics sector. The common approach is – give us your body, leave your brains behind. However, a strong LSP partner can help the manufacturer optimize their supply network and lower costs at the same time. It is high time the industry recognizes that LSP’s are not mere robots moving goods from point to point – they can be a strategic input. SCM Pro takes a look at the emerging role of LSPs in Automotive logistics.

36 SCMPr

September 2013

lead story

T

he automotive sector, like all other sectors of the economy, is facing a rough patch worldwide. Sales are projected to continue their downward journey–notwithstanding the blip of August sales (which incidentally was on account of the low base effect–remember there was a strike at Maruti’s Manesar plant in July-August 2012!) However, the logistics and supply chain managers are reacting differently–the LSPs in Europe are quickly adjusting inbound and outbound networks to match a changing supply, production and distribution footprint across greater Europe and its links to the rest of the world, while in India we continue to operate in separate silos.

In response to the emerging business environment, automobile makers and the suppliers are making considerable changes to supply chain operations. The buzz in the LSP markets currently in vogue is “logistics engineering”–the science of planning logistics in ways that lower daily transport and inventory costs, as well as to use logistics data to better inform decisions on sourcing and production locations.

The first step in changing the status quo is to take a look at the existing network. The L1 concept that we follow in India–the lowest cost operator gets the business does not create a healthy logistics sector. Selection of the LSP should not start with a request for quote, nor should it end with the L1. Instead, it should start with a concept, define it and then move to implement it. Cost should come after the benefits are assessed.

This pre-supposes that the manufacturer is willing to share information with the LSP–something which is not very common in India.

The second issue in network planning is the push to go multi modal. Given the extraordinarily high number of model launches predicted for the future, and the clusters of manufacturing, we will see a higher numbers of vehicles shipped across the country.

As India’s road get crowded out, we will need to look more at rail and short sea shipping for inbound part flows. The current mode of road transport, which is a higher polluting and high cost model will have to give way to multi-modal transport. For example, Suzuki used Gujarat as a hub to transport cars from Northern India to Kerala in the South through shipping lines. Adani Logistics Ltd. transports Maruti Suzuki India Ltd’s (MSIL) cars from their plants in North India to Mundra, Gujarat, from where it is shipped to Kochi in Kerala along the coast in smaller container ships. Another option is to use the rail network to move vehicles. This will free the road infrastructure and at the same time reduce pollution.

Multi modal transport does increase the complexity of the logistics operations, but will turn out cheaper and energy efficient in the long run.

As the complexities of moving products increase, logistics will determine the sourcing pattern for auto makers. Auto makers would prefer to source locally and sell globally, thereby saving on one logistics cost!

The ‘origin-based network’ for inbound logistics followed today includes cross docks spread across the country, collecting thousands of less-than-truckload routes, trade lanes of full truckloads from component factories, as well material export flows to other

Areas Requiring focus by LSPs (%) 100 80 60 40 20 0 Realibility & on time deliveries

Integration

Nil

Reducing logistics cost

Minimal

Reducing in-transit damages

Moderate

SCMPr

High

OptimiZing finished goods stock Very high

September 2013

37

37

lead story

(%)

Strategies for Logistics Planning

100 90 80 70 60 50 40 30 20 10 0 Cross docking

Nil

Minimal

Excise & Octroi support

Value added services Hub & soke by logistics network service provider strategy

Moderate

High

Collaboration is the Key One of the biggest problems in automotive logistics is the inability of the stakeholders to collaborate to reduce costs and optimize deliveries. It is taken for granted that auto makers will not share their logistics infrastructure–to the extent that shipments are either delayed pending full load, or go partial. Yet, automakers would not want their brands to share transSeptember 2013

Using 2PL/ 3PL/4PL

Full truck loads

Shifting modes Trading off of transportation increasing (air to road) fuel prics for inventory

Very high

countries. The challenges include different set of taxes and rules that make transporting goods a very complicated process.

Improving the supply chain is not simply a matter of implementing existing technology, or of convincing CEOs to pay more attention to logistics. It calls for a radical re-look at the changing trends in customer expectations. Matthias Schulz, director of material planning and logistics at Ford of Europe talks of customers ordering cars on the internet who will expect an “Amazon-type service”. “You can’t just keep coming up with the solutions of the past. Customers will soon expect that they can order their car, and that it can be delivered on a Saturday.”

The assumption that a LSP can add value to the manufacturer’s activities stems from the fact that they will be specialists who will be performing the same service to multiple manufacturers and there can be a cross pollination of ideas. The LSP has a central role in capacity planning and route optimization.

38 SCMPr

Warehouse consolidation

portation space with their competition–this when the competition can buy a vehicle for experimentation!

The shape of things to come can be understood by the General Motors Europe’s alliance with PSA Peugeot Citroën which has led to a fourth party logistics provider (4PL) outsourcing of logistics planning, operations and purchasing to Gefco. General Motors Europe’s inbound and outbound supply chain has been handed over to Gefco across Europe, Russia and Turkey. In one swoop, the alliance effectively combines Opel/Vauxhall and Chevrolet’s logistics with those of PSA, Gefco’s former majority owner, as well as with the provider’s other automotive clients.

Disruptive Challenges A note of caution–while we plan to expand the service offerings and are set t take a more central role in the supply chain, there are a few disruptive technologies coming up that will change the way we operate. There may are some fundamental shifts about to hit the aftermarket for cars, with profound effects for logistics. Alois Ackermann, Managing Director of European sales for the small packages business at Fedex, noted the potential impact of 3-D printing, which would dispense with logistics all together for the many parts that could be created by dealers at their own premises. In 3D printing, the service center can print out their requirement of parts from the design specifications from the OEM.

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Academic Advocacy

Rudolf Leuschner, Dale S. Rogers Rutgers University Francois F. Charvet Staples, Inc., Northeastern University

40 SCMPr

September 2013

Academic Advocacy

A Meta Analysis of Supply Chain Integration And Firm

Performance

As supply chain activities become more dispersed among customers, suppliers and service providers, there is an increased need for customers and suppliers to work together more closely. We carry excerpts from an interesting research carried out by Leuschner, Rogers and Charvet.

A

s supply chains matures, their complexity increases. Managers are asked to improve productivity while increasing customer service. Shareholders expect profitability to grow quarter over quarter. These internal and external forces have the effect that often tasks that previously were performed internally become outsourced. This results in increased interaction among firms in a supply chain and requires closer relationships to ensure that the flows of product, information and payments operate efficiently.

Managing these relationships requires cross-functional and cross firm business processes with appropriate levels of information sharing, operational coordination and select close partnerships.

The term “supply chain integration” (SCI) has been defined as the

extent of engagement with suppliers and customers. Supply Chain Collaboration and Supply Chain Coordination are elements of Supply Chain Integration.

To integrate all of the studies the authors collected into one framework, which provides the following definition of SCI for this research. “SCI is the scope and strength of linkages in supply chain processes across firms.

Information, operational and relational integration facilitate the linkages in supply chain processes between firms. The scope of SCI can be integration with customers, suppliers, internal or external. The overall premise of our research is to test whether tighter integration leads to better firm performance.”

The primary purpose for this study is thus to provide the first comprehensive, quantitative and SCMPr

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Academic Advocacy integrative review of empirical research linking SCI to overall firm performance. The methodological advantage of a meta-analytic study is that statistical artifacts such as sampling or measurement error can be accounted for.

Another advantage is the ability to examine how various study design factors may affect the relationship between SCI and firm performance: (1) Is there evidence of a positive correlation between SCI and firm performance?

(2 Does the co-relation between SCI and firm performance vary across different dimensions and operationalizations of SCI? (3) Does the correlation between SCI and firm performance vary across different performance dimensions?

Dimensions of Firm Performance At the focus of this research, the linkage between SCI and firm performance is evaluated in more detail. While most empirical studies find a significant positive association between SCI and firm performance, some also reveal significant negative effects, and the magnitude of the association varies considerably. To better understand this relationship, performance effects collected in the meta-analysis were summarized and evaluated across three categories. Financial firm performance was measured using either revenue minus cost-based measures, such as profitability and return on assets, or purely revenue-based measures, like sales and market share. Customer-oriented performance consists of measures related to an improvement in customer satisfaction and customer loyalty, or closely related constructs. Finally, operational 42 SCMPr

September 2013

Research Framework Scope of Integration l Customer l Supplier l External

Supply Chain Integration

l Internal

Firm Performance

Information Integration

Business Performance

Operational Integration

Relational Perormance

Relational Integration

Operational Performance

Scope of Firm Performance l Business

Performance

l Financial

Performance

l Customer

oriented Performance

l Operational

Performance

l Cost l Quality l Delivery l Innovation l Flexibility

performance consists of improvements in key competitive capabilities including cost, quality, delivery, flexibility and innovation.

Analyses were conducted both on aggregate firm performance and each separate dimension. Several studies found a significant relationship between SCI and firm performance. Thus, it is proposed that SCI is positively correlated with different measures of firm performance.

In this study, the authors accumulated and integrated the results of empirical research on the relationship between SCI and firm performance that may lead to generalizable evidence for advancement of theory and practice on SCI. Inconsistencies in original research results may be due to artifacts such as sample sizes

and measurement errors in the original studies. Subgroup analysis of moderators showed that the majority of samples have a significant relationship between different operationalizations of SCI and operationalizations of firm performance along theoretical expectations. A necessary implication of this meta-analysis for future research is that when results are contradicting or nonsignificant, it may be due to the study’s heterogeneous factors, for example, the industry, the type of companies that were considered, or even the time period in which the research was conducted. In that case, a detailed assessment of significant differences in correlation coefficients for various subgroups may explain deviating results.

Academic Advocacy Implications for Theory In initiating this study, we encountered an expansive literature base that appeared to use an array of perspectives and different theories in investigating SCI. The authors examine SCI under the lens of the RBV of the firm and the extensions of the RBV that were R-A theory and the RV. The primary objective for this metaanalysis was to investigate whether SCI as a firm resource is related to better firm overall performance.

This can help determine whether SCI should be viewed as a source of competitive advantage.

The overall positive and significant relationship between SCI and firm performance is a significant, but not surprising result.

Closer integration is significantly correlated with better firm performance. While this result does not specifically point to causality, it should be expected that firms engaging in integration efforts should experience higher firm performance as a result.

At the same time, researchers have noted that firms working toward higher levels of SCI are likely to face a number of challenges. In the next step, three separate operationalizations of SCI were analyzed. Information integration is significantly correlated with firm performance. This result can be explained by arguing that sharing of information will enable both companies to operate more efficiently.

In addition, internal integration also has a significant correlation with firm performance. These two types of integration are generally considered as requiring the least involvement and effort.

There was no significant correlation between operational integration and firm performance.

A higher level of integration may cause temporarily higher costs, and it is possible that the result-

ing increase in performance is not large enough to recoup those higher costs.

The evaluation of different measures of firm performance revealed several noteworthy findings.

The impact of SCI on business performance, which is generally associated with revenue generation and profitability, is not significant. The weak link to revenue generation and the bottom line is not surprising because most of the benefits from SCI are expected to be in the form of cost savings.

business terms, but marketing researchers argue that lagged financial benefits occur as a result of customer-oriented performance.

Implications for Managers A meta-analysis, such as the one described in this article, can help managers understand the level and significance of the relationship between SCI and firm performance.

More specifically, this study can help answer questions such as what type of SCI has the chance to lead to the highest benefits in terms of

These benefits may not be immediately measurable in financial or business terms, but marketing researchers argue that lagged financial benefits occur as a result of customer-oriented performance.

Such efficiencies often do not have the profitability impact to warrant a significant change in the bottom line as the savings do not have the same profit leverage as revenue increases. More specifically, financial performance also had a non-significant effect, which is additional evidence. The impact of SCI on customer-oriented performance, which specifically is related to relational outcomes such as satisfaction, trust and commitment, has a high and significant correlation.

This result points to the fact that closer integration with customers and to a lesser extent with suppliers can have intangible benefits that can improve the relationship.

These benefits may not be immediately measurable in financial or

firm performance. There is evidence that SCI leads to higher firm performance, in general; however, more importantly managers should understand what will be most beneficial to their organization. On the basis of our results, all levels of integration can be beneficial for firm performance; however, operational integration can have varying results. The operational benefits of SCI are only found in the areas of delivery performance and innovation. This result provides support to the notion that managers should not expect quick payoffs from their integration initiatives, like cost savings and quality improvement, but it is more likely that longer term, more durable performance gains can be obtained.

SCMPr

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43

n Risk

n response

n Analytics

n Retail

n human resource

Human

Darryl Judd

COO, Logistics Executive darrylj@ logisticsexecutve.com

44 SCMPr

September 2013

talent

Interaction Vs Technological Attraction The use of technology and the rise of social media in business has dramatically changed the way companies recruit.”, writes Darryl Judd, Chief Operating Officer for the Logistics Executive Group.

T

he use of technology and the rise and rise of social media in business has dramatically changed the way companies recruit. The global financial crisis has amplified this as Internet jobs boards, in-house applicant management systems and social media websites became the preferred option for companies to search for new recruits.

On the face of it this makes total sense, simply tap a few key words into your CV search database or the search engine of the website you are using (better still post an online job advert with those all-important key words included) and

as if by magic a list of applicants resumes appear with exactly those key words listed….

Success!

Or is it…?

Firstly let’s take online advertising whether it’s through an Inhouse system linked to your company’s website or an internet jobs board, and forget the cost for now.

You post your job advert it’s as simple as that isn’t technology great!

What generally happens next is you receive over 500 applications, with about 95% of applicants being totally unsuitable for the vacancy you have advertised. The number of applicants you get de-

pends on how specific and clear the job description and requirements are written in your job advert (The better the advert the lesser the applicants). Many online job advertisements are way too general, the upshot being far too many applications, and it’s not the applicants fault, how should they know you need someone with experience of managing four facilities and a fleet of 250 vehicles if you failed to mention it in your Logistics Manager advert?

Yes some of the systems are clever, you add a couple of yes / no questions which the applicants must answer to get through the first level “automated” screening SCMPr

September 2013

45

talent process, for example “Do you have 10 years’ experience as a Logistics Manager based in Algeria?” and “Do you speak fluent French?”

The applicants without the required experience simply answer “yes” and hey presto they just made it over the first hurdle. Stupid computer….

And why do the applicants say yes when it’s not true? I guess it’s some vain hope that they might be selected for interview even if they don’t have the appropriate in-county experience or they aren’t fluent in the specific language you clearly stated as essential.

skills aren’t actually that important after all for such an impressive candidate?

Apply for enough jobs (regardless of your suitability) and surely you must land one sooner or later…right?

Wrong! It’s probably not going to be the case…

So back to your in-house recruiter who posted the advert for the job and is now spending hours screening through all of the applications (alongside the other adverts they are screening) to drill down to the 5% (likely less) of potentially suitable applicants.

“Logistics Manager” is mainly handling procurement for a small trading company, yes he has a couple of trucks he is responsible for but he has never been responsible for a managing a large logistics operation.

The next part from the applicants side is they hear nothing back from the recruiter and are annoyed about the fact that they didn’t get shortlisted as they “can do the job!” even though they don’t have any experience in the specified country and can’t speak fluent French.

Their own fault for sure, I mean they could have spent their time applying for jobs they actually meet the requirements for couldn’t they?, but they applied online with a quick click of an “Apply” button so is it really time wasted for the applicant or is it giving them just one more chance that they might get lucky when the recruiter see’s their amazing experience and decides that location and language 46 SCMPr

September 2013

We now have a frustrated recruiter with a sore finger from constantly tapping on the reject button and 475 plus disgruntled applicants who are aggrieved that they didn’t even get a phone call.

If your system is smart they probably just received the same kind of automated reject email they always get in response to their applications. No fun for anybody.

By now the recruiter has rejected all of the chancers and is down to the last 25 people who could (possibly) be a fit.

And finally your recruiter is into the human part of the process to get in touch with whoever is left.

It’s highly likely that by this time your in-house recruiter has

spent so long sat in front of a PC monitor rejecting unsuitable applicants for various jobs that actually picking up the phone and speaking to the last few doesn’t even spring to mind, so its email all the way.

Keep tapping those buttons…. your recruiter is practically a machine by now.

Disgruntled applicants dealt with (auto reject!), the required information back from the final few and its shortlist time… (Or “long list” time… we are still a long way off).

Next a batch of suitably key worded CVs are given to the hiring manager but in the case of in-house recruiters (and with the upmost respect intended) they can’t all be specialized enough to accurately recruit for every function in your company so there’s a good chance none of the people fit the bill, but you can’t fault your recruitment team.… “Look there!” say’s your recruiter “The CV says Logistics Manager” There is a term I like to use for this… “Title Surfing” “And he speaks French and he lives in Algeria…look its written there”.

On closer inspection the hiring manager see’s that this “Logistics Manager” is mainly handling procurement for a small trading company, yes he has a couple of trucks he is responsible for but he has never been responsible for a managing a large logistics operation in his life and certainly isn’t the right guy to manage four warehouses and fleet of 250 vehicles country wide.

Don’t be fooled by job titles thinks the hiring manager….!

Ok so it’s not the recruiters fault, they followed the brief to the word and yes the pile of CVs they gave you include all of the key words; in fact they probably think you are totally unreasonable by now.

talent This example of technology hindering the recruitment process is more common than you may think.

Emotions aside its back to the drawing board, this whole process (waste of time) has taken four weeks already and you still haven’t met any potential candidates so you set about double screening the CV’s and maybe you will find a diamond in the rough, at least on paper anyway.

The best solution would have been if your in-house recruiter was already specialized in the functional area that you were recruiting for and also deeply networked with people actively working in those functions for other companies, but with so many urgent vacancies to recruit for the other (very different) departments there is no time in your recruiters day for that.

And so to social media…

Connect…connect…connect…! To as many people as possible, a surefire way to get the right people isn’t it?

You post some information about the job vacancy in your status update and within seconds you are connected to Thousands…

Millions of potential employees, your “word of mouth” advertising spreads exponentially through cyber space, no stone remains unturned!

Then the responses fly in, Job seekers write short comments under your post “pls view my profile” and “I am perfect for this job”.

Whatever happened to formal job applications?

Next you see that your inbox is spilling over with direct messages from job seekers with the majority being from people completely outside of your industry.

If you reply to all these people (as you rightly should – isn’t that what social networks are all about?)

you have just added an un-measurable number of hours to your working week.

Damn this connected world…

And with all of this going on you still haven’t actually met anybody yet.

My point with all of this is where does it end, at which time do you actually speak to people or meet people. Nowadays it’s just a case of hitting a few buttons and that’s from both sides of the table, jobseekers and hiring companies alike. For job seekers actually getting to meet someone is a challenge in itself with employers hiding for the most part behind online recruitment software and emails or connecting to someone as a one off on a social media platform.

Of course there will be situations where you ask someone on a social networking site if they are interested in a job, they say yes, you go through the process and all works out perfectly. But a word of warning here… for every other person you connect to that you don’t continue to have at least some form of contact with you are actually damaging your personal brand and in addition its highly likely your inbox will be constantly full of emails from jobseekers who you simply won’t have time to reply to, further damaging not only your personal brand but also your companies brand.

Unless it’s a core function of your job to stay connected with people who are looking for jobs

For job seekers actually getting to meet someone is a challenge in itself with employers hiding for the most part behind online recruitment software and emails or connecting to someone as a one off on a social media platform.

That isn’t the beginning of a good a relationship is it?

In order to benefit from using social media for recruitment purposes you have to invest a hell of a lot of time on a daily basis; firstly in order to find the right people to connect to, secondly to convert those virtual relationships into real life relationships by actually speaking to people and thirdly to enhance and concrete those relationships consistently for the long term which is a full time job in itself and is likely not your main priority.

you are embarking on a very precarious balancing act by trying to do your main job (which pays the bills) alongside being a part time social recruiter.

I am not saying there is no place for technology within your company to help manage the recruitment process, in fact the correct use of applicant tracking systems in particular is essential to ensuring a timely and well communicated recruitment process and certainly when it comes to dealing with high volumes of recruitment (generally SCMPr

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47

talent for the more junior role’s) it saves loads of time.

However at a certain level of position you have to push back on the technology and bring the human element to the forefront.

If you are using your in-house recruitment team’s you actually need specialists, individuals who are purely focused on recruiting as well consistently networking with people in their targeted functions building real relationships and constantly increasing their knowledge of their specialism whether its Finance, IT, Lo-

system due to the limited number of vacancies you have, ultimately resulting in your hiring managers or HR manager trying to recruit directly by themselves – refer back to the social media comments above.

Alternatively you may be a large conglomerate with a huge volume of regular vacancies, a large in house recruitment team armed with cutting edge recruitment software and all the online advertising you need.

As mentioned before your inhouse recruiters can’t each be spe-

The online jobs boards reach a lot of people but can’t accurately screen people resulting in a mass of unsuitable applicants and often causing the few suitable applicants to go unnoticed. gistics, Procurement, HR, Sales, Marketing etc, and depending on your business you may need specialists who are focused on Automotive, Retail, Industrial….the list goes on.

Does it make commercial sense to employ enough specialists to individually cover each of these areas? absolutely not.

Again depending on your business and your company set up you will maybe have some specialized in-house recruiters but that will also depend on the scale of your recruitment activity due to the size of your company. You may be an SME with no recruitment team, no justification (in terms of cost) for paying for adverts on online jobs boards or buying an in-house 48 SCMPr

September 2013

cialized in every single area of your business and definitely won’t have the time to stay networked with potential future employee’s (on a just in case the right job comes up basis) so there’s a good chance it’s going to be back to the “Title Surfing” and wasted time.

All that you have read so far is happening in businesses large and small across the world today, we will continue to see the use of technology for recruitment purposes but my prediction is it will be in a different guise to what we see today.

What guise? Unfortunately I don’t have an answer to that question just yet….

What I do know is that many of the in-house automated recruit-

ment systems simply annoy the very people companies are trying to attract due to the often complicated and long winded process of applicants having to register (create a new profile) and then being requested to add as much information about themselves as possible including answering questions on skills and experience, and stating why they want the job etc.

And that’s before they have even submitted their application!

Imagine having to go through this painful process yourself many times for loads of different companies one after the other when looking for work, without any assurance that you will even get a response.

The online jobs boards reach a lot of people but can’t accurately screen people resulting in a mass of unsuitable applicants and often causing the few suitable applicants to go unnoticed as their resume wasn’t key word friendly enough resulting in no response from the employer (or an auto reject response from the jobs board) which is already pushing more and more people to move away from applying to jobs through jobs boards.

The social media sites seem to have a limited lifespan, the artificial relationships that are quickly made will end just as quickly when the new flavor of month website comes into the limelight and people jump ship.

On top of this people are becoming much more guarded about the information they provide about themselves online.

In summary there will always remain a need for real life relationships in the hiring process, human being to human being.

When it comes to recruitment don’t assume you can rely on technology, genuine and consistent human interaction will always be the key to successful hiring practices.

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last page

Lessons from a Failure – III

R

Rakesh Singh Director, DSIMS, Chairman ISCM.

50 SCMPr

September 2013

ural retail experiments have failed to perform as expected.

Experiments like Hariyali Kisaan Bazaar and Mahindra Shubhlab Ltd., have died a natural death. An uncertain economic environment with fluctuating low rural income and a high cost of reaching this last mile poses a great challenge to any such experiment.

Corporate initiatives like these also have a major strategic drawback. They have been operating within their own sphere of influence and hence are unable to create scale economies which are essential for such experiments to succeed.

In my earlier column I had written about why these experiments have failed. But the big question emerges is can these experiments be made viable, sustainable and scalable.

To answer this question, we need to look at the consumer demand in the rural and agriculture markets because these experiments were largely agriculture details with some element of rural retail incorporated.

Farmer segments in India largely consist of small and medium farmers who are the future of Indian agriculture. Large farmers constitute around 1.5 per cent of the total population and they contribute around 35 per cent of the food grain production. Small and medium farmers on the other hand contribute around 65 per cent.

Thus, it is important to understand the role of these experiments on how they can help small and medium farmers to adopt modern inputs and technology to enhance overall agricultural productivity. The larger farmer is known to have clear commercial

focus, has limited credit means, makes his own brand choices and is leader to new technology practices. But the small and medium farmers need credit, do not adopt modern technology, procures its inputs from the dealers and is heavily influenced by the dealers, which lead to sub-optimal quality. In fact, small and medium farmers are sustenance farmers who produce for themselves and a small proportion of this is left for the market, which is controlled by multiple agents, from the village to the Mandi, thus, giving him a very small part of the value of the product. This segment can be successful only when we can promise lower costs of production, provide them with working capital, help them to get better price realisation and also are able to help them to sell their output directly to the processors or the final users.

It is clear that a collaborative model based on public-private partnership, like the terminal markets would work in a brilliant way because it can aggregate in a farming requirement in one place i.e. inputs, farm equipment, insurance, credit and consumer expendables and durables.

In such an experiment, these corporates have to move out from their own sphere of influence and create an aggregate model, sharing the responsibility of a service approach by creating an agricultural service centre as a part of this retail, which would help farmers to adopt better practices, create trust and make them believe that these experiments are here to benefit them.

Only then, will these experiments get acceptance and will start making sense and survive.

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