Full magazine November 2014

SCM WORLD GURU SPEAK KNOWLEDGE ACADEMIC ADVOCACY HUMAN RESOURCE November 2014

Guru Speak Behavioral Supply Chains page no. 14

SCM Educonnet Supply Chain Professionals page no. 38

Vol. 2- No. 8 Rs. 150

Academic Advocacy Onmeasuring Company Performance within a Supply Chain page no. 42

EDITORIAL

Time to Celebrate?

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GIRISH V S EDITOR

inally, the new government has got its act together – a series of reforms have been announced. Unlike in the past, the objective of the current round of reforms has been very clear – to improve the Ease of Doing Business in India from the lowly 134 we are currently at to a respectable figure of less than 50. Clearly the focus is on enabling small and medium enterprises to set up their operations. The first steps have been reassuring – simplifying labor laws, freeing diesel prices, coal block allocation reforms to name a few. However, the core issue will continue to be infrastructure -it will be easier for us to "make in India" but we need to develop the capability to take it out of the country easily in short we need good roads, rail and sea connectivity. And we need players who can flexibly use all these to deliver across the country at the least cost. Which also means we need to invest in information technology - not in patches - but a holistic view of our information needs as we become a global player. We need to relearn that supply chain management is not logistics. We need to learn that supply chain and strategy are peas in the same pod.

Quite an agenda. Almost every supply chain manager I meet asserts the primacy of supply chain. And contrary to expectations, the CEO is still concerned with top line, bottom line and fire fighting in between. Supply Chain is still not on the CEO's radar at least not as prominently as we would like it. It is not all that bad - slowly, people are waking up to the potential of supply chains. In September, I was at an academic conclave on Supply Chain, organized by Great Lakes Institute of Management and ISCM. It came as a pleasant surprise that around 100 plus students in a batch of 400 had opted for supply chain as their specialization.

Good news indeed.

It is still work in progress. I believe we need to wait a while before we uncork the bubbly. In the meantime, let us continue our efforts.

Happy Reading are not sure. Troubled times are ahead of us.

Happy Reading

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November 2014

CONTENTS NOVEMBER 2014 November 2014

08 SCM NEWS >>

30 SME CORNER >>

Analysis of latest Supply Chain and Logistics happenings.

Dr. Asad Ata explores the Supply chain challenges for small and medium sized enterprises.

11 SCM WORLD >> Dr. Rakesh Singh deals with the emerging role of SCM in the pharmaceutical Industry.

34 KNOWLEDGE >> In this part 4 of the series, Stephanie Krishnan, Joe Lombardo and Raymon Krishnan examine the key elements of people delivering the value to Supply chain.

14 GURU SPEAK >> Dr. John Gattorna examines the influence of consumer behavior on supply chains.

38 SCM EDUCONNECT >> Dr.P.Chandiran, Associate Professor, Loyola Institute of Business Administration, Chennai lays out the institutions efforts to create industry ready supply chain professionals.

18 LEAD STORY ISCM and SCMPro supported by the Organization of Pharmaceutical Producers of India organized a seminar on pharma supply chains, themed “Unlocking the Value of Pharmaceutical Supply Chain.� The lead story for this issue highlights how Supply chain as a profit enabler is a understood phenomenon with all the pharmaceutical players.

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40 SCM CLASSROOM >> IN this concluding part on Inventory management Piyush discuss ways and means of breaking the inventory trade-off.

42 ACADEMIC ADVOCACY >> This research investigates the use of common measurement metrics in an attempt to determine which one(s) are most useful for measuring performance as companies implement SCM practices.

204-D, Riddhi Siddhi Complex, Off. S. V. Road, Opp. Patkar College, Goregaon (West), Mumbai 400062, INDIA.

46 HUMAN RESOURCE >> Darryl Judd and Kim Winter on critical component of team building – 'Culture'.

50 FEATURE >> Jeevan Kumar Rao, CEO, Indelox Service, shares his views on AEO Certification.

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November 2014 October 2014

NEWS

Supply Chain Drives Technology Innovation

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here was a time when we used to talk about innovations in technology that is helping reshape the supply chains. But off late, there is a new trend emerging – supply chain constraint that drives technology changes. For example, L'Oreal faces a unique problem –roughly 30 percent of its products are new products.

Similarly, Zara – the garment brand – stocks its stores every week. The customers today expect new products from them routinely. On the other extreme, the Dodd Frank Act in the US requires US manufacturers to know if their products contain minerals from Democratic Republic of Congo! And this means, they have to rejig their supply chains – L'Oreal for example has outsourced supply chain management to a firm called E2open – a technology based supply chain management firm.

In other areas, the drive to reduce costs has made Kellogg use software to calculate the dimensions of the package and design the packing to reduce gaps. Firms are toying with computer cognitive learning – the new lingo for fuzzy logic – which enables the software to respond to customer buying behavior in real time. For example, a US firm asks its customers to send in their favorite flavor, and the firm sends them a suitable recipe. The beauty is that the firm uses this data to plan where to sell what flavor! The supply chains are now getting their act together and demanding solutions.

Analytics to the rescue

Hacking Their Way in

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t seems the troubles for a firm just got bigger. Cyber security, as implemented by firms is based on securing the companies IT assets against an intruder. But in a recent report, experts have warned that securing the companies IT assets is not enough – hackers can still sneak in through the supply chain! Last year the US retailing giant Target was attacked by a malware that stole the credit card details of more than 40 million customers were hacked. In all it lost data from more than 70 million customers. And surprise, surprise…. The malware entered Target's systems through the access granted to a supplier!

And if you thought phishing is passé, we have a new sport in action – spearphishing – where the criminal will study the behavior of the firm's employees through their social media sites and design messages that will have a higher click rate. But for every criminal attack, there is a fix – a US based cyber security firm – Ionic Security –uses an innovative feature for its encryption- it asks the data owner permission every time someone tries to read the data.

Looks like the suppliers and even their suppliers could be the new hacking route.

November 2014

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orecasting is a very inexact science. We have managers who are happy with 70 percent accuracy. But recent advances in technology – that old bit of computing called artificial intelligence – is being put to use by firms. Today, it is possible for software to scan millions of data elements, and generate reports that can be understood by humans. Retailers today have the capability to understand the impact of a discount on a particular product at a specific store, analyze how sales will initially climb, before declining. The software can then use this data in other situations, where the manager is planning a discount. And users have reported forecast accuracy of 98 percent. Clearly, data analysis can no longer be confined to a few spreadsheets. Welcome to the new frontier of machine learning.

UPDATE Mahindra Logistics Partners with Indian Vehicle Carriers

Sushil Rathi Sr. Vice President, SCM, Mahindra Logistics Ltd.

Mahindra Logistics Limited (MLL), a subsidiary of Mahindra & Mahindra Ltd., has announced a partnership with Indian Vehicle Carriers Pvt. Ltd. (IVC), to be branded as2x2 Logistics, aimed at launching assetized operations in outbound automotive logistics.

Mahindra Logistics will have a majority stake in '2x2 Logistics', the new entity, which will initially invest in 100 specially designed car carriers to serve automobile and two-wheeler Original Equipment Manufacturers. This partnership will allow MLL and IVC to further develop and expand their transportation networks, linking the North, West, South and East clusters of production and consumption of automobiles.

“This is the first time we will be significantly assetizing our business by investing in 100 car carriers to begin with, and then ramping up capacity. It will help strengthen our operating capabilities in automotive logistics, our largest target industry vertical, with a clear focus on technology, quality and corporate governance. Forming such partnerships with our business associates will be an important part of our growth and success.” says Pirojshaw Sarkari, CEO, Mahindra Logistics.

“As OEMs expand their product lines in India, we see a significant potential for car carriers which are specially designed to meet a variety of needs, both in terms of dimensions of the vehicles being carried as well as special handling requirements. We will have a very specific focus on design innovation in car carriers in 2x2 Logistics. We are already one of the largest automotive logistics service providers in India and this joint venture will allow us to directly operate assets and serve our customers with a greater degree of predictability and control,” explains Sushil Rathi, Senior VP, Mahindra Logistics.

“This is a proud moment for all of us as this JV has the potential to change the landscape of Indian automobile logistics industry. Having been in the automotive logistics industry for more than 30 years, I can say without doubt that this new entity will have all the capabilities to become a one stop solution for outbound logistics. We hope to leverage each other's strengths and offer the highest level of quality and service to our customers.” says KS Singhal, Founder & Owner, Indian Vehicle Carriers.

November 2014

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Krishnapatnam Port – The Socially Responsible Port Wins the Prestigious CSR Award As part of Dubai Maritime Week, the annual Seatrade Maritime Awards was hosted in Dubai on Monday 27 October 2014, wherein individuals, organizations and companies from across the Middle East, Africa and the Indian subcontinent maritime and shipping industry were honored. This year's winner of the 2014 Seatrade Maritime Awards for the category Corporate Social Responsibility was Krishnapatnam Port Company Limited. The Krishnapatnam Port's Leadership Team, based on an unequivocal commitment to human values, believes in sustainable development and maintaining harmony with the communities living around the Port.

As part of broad CSR framework, the Port has embarked on a series of human development initiatives specifically creating novel opportunities for empowerment and enterprise building. Currently, the Port invests its resources into Education; Skill Promotion and Job Development; Health, Safety and Environment; Community and Local Economy Development and Employee Development. All the activities are executed through its exclusive partnership with CVR Foundation.

The port started its CSR endeavor by building 500 houses with all infrastructural amenities as a part of its Rehabilitation & Resettlement program for the nearby villages. It then created Community & Local Economy Development programs that have helped in empowering the local community to grow along with the port. Some of the CSR programs currently run by the foundation include Scholarship Programs for needy students, CVR English Medium School, Krishnapatnam Security Academy, Krishnapatnam Academy of Professional Studies, Krishnapatnam Driver's Training Academy, Navyatha Training cum Production Centre that is focused towards enabling and equipping women to become independent, CVR Medical Centre, Community Reach-out Clinics, Reconstructing History, Faith & Religious Places of Worships and Enterprise Development opportunities.

SCM WORLD

GURU SPEAK

KNOWLEDGE

ACADEMIC ADVOCACY

HUMAN RESOURCE

SCM Is the Only Way Forward Can you say what's your supply chain is? Most Pharma supply chain professionals tend to give a piecemeal view of their supply chains. A clear well integrated view of supply chain is absent and that leads to a lot of problems which can be attributed to a silos view of supply chain. The big question is why is this so? Are Pharma companies insulated from the today's world of intense competition? Is Pharma landscape static? Dr. Rakesh Singh, Chairman, Institute of Supply Chain Management deals with the emerging role of SCM in the pharmaceutical industry.

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look at the pharma landscape reveals that the landscape in India is changing fast. Pharma companies can no longer remain immune to the changes and operate static supply chains. With the emergence of a complex network of hospitals, providers and physicians, supply chain complexity has increased manifold. This along with the dominance of generics in the future, nearly 150 billion of profits will be lost to generics reports a recent Price Water House report.

As the competition intensifies and pharmaceutical production becomes more complex; as companies expand their portfolios, reliance on old logistics and marketing driven approach to manage supply chains will create more headaches.

According to an AIOCD AWACS study most pharma companies loose between 3-5 percent of their topline every year due to stock out of moving products at stockist.

What is also important is that this is never recorded as the focus is always on stock transfer to stockist i.e. primary sales. And you talk to pharma marketing guys you find

November 2014

that they tend to overlook the importance of supply chain and even claim that these changes are hard to come by. Is it possible for pharma companies to ignore the demands of rapidly changing market dynamics? Isn't there an urgent need to realign the entire supply chain in order to bring in speed, flexibility, responsiveness, visibility and efficiency into the supply chain?

It is a well-known fact that pharma landscape has changed significantly and not the mindset. Numerous studies have compared some business metrics across industry and have found that pharma supply chain related performances are very poor in comparison to other industries. If we look at the data in the PWC report this becomes evident. Even though these companies have grown in the range of 19-25 percent, they, on an average perform poorly with comparison to other industry in terms of number of days of inventory, manufacturing lead time, obsolescence as a percentage of sales and cash to cash cycle in days. A comparison with the FMCG companies here reveals that Pharma

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Dr. Rakesh Singh Visiting Professor of supply chain strategy and economics, Great Lakes, Chennai and Chairman, Institute of Supply Chain Management, Mumbai, Managing Editor, SCMPro

SCM WORLD foremost need is to marry their supply chain strategy to business strategy. What does this mean? Let's look at the basic supply chain and what are the macro processes that define this? The macro processes can be broken into three elements. Supplier relationship management, Internal supply chain Management and customer supply chain management.

Seeing the supply chain as a whole means pharma firms will have to link seamlessly all these processes. Linking them through joint planning and technology becomes imperative.

In order to let these three macro processes work well a cross enterprise team is a must. We also need to see that within internal supply chain each one of functional heads work with the broader business objective than be focussed on his functional excellence. A cross-functional approach to supply chain planning would set the architecture for a better supply chain.

Most pharma companies loose between 3-5 percent of their top line every year due to stock out of moving products at stockist.

Company has an inventory of 258 days as compared to 72 days of inventory held by FMCG companies. When we compare the manufacturing lead time we find the same story.

Pharma manufacturing lead time is 150 days as compared to 5 days for FMCG companies. What it can do your supply chain cost is anybody's guess. Inventory invisibly lying at all the levels of supply chain leading to stock outs of 3 to 5 percent of topline and also orders for manufacturing with long lead time creates and complicates the problem further.

As a professor I would say this is the typical bullwhip effect.

Consider if the mean demand at any outlet is 300 units of a product and standard deviation too is 227 the safety stock would work out to be 1023 units. Can we even imagine this if we want 99 percent service level? In a protected patent regime things would be fine and in generics it would create a huge problem for the sustainability of the business itself.

Lower overall effectiveness, high inventory, high manufacturing lead time, low utilisation of man power; late delivery and product obsolescence are all the problem of lack of focus on operational effectiveness. By focussing on operational efficiency pharma companies can become responsive player with lower cost.

Let's also look at the obsolescence rate in pharma it is 3 percent of the sales and in FMCG it is 0.5 percent. And cash to cash cycle values are in the range of 200 days. All other industries have cash cycles much lesser than pharma.

Automotive cash to cash cycle is 94 days and hi-tech and electronics is 5 days. On all parameter other industries are far ahead and are great example of what pharma industries need to do in order to survive the changing landscape.

Pharma companies have no choice today but build more responsive and efficient supply chains.

The final point is that pharma companies should concentrate on their forecasting and information management. But while doing these, pharma firms have to design a supply chain model based on their own complexities. They need to take into account their product, markets and customer data to remove complexities. They also need to redesign their distribution network and sales force in such a way that the visibility of last mile sale helps them build a seamless and transparent supply chain. The success of FMCG companies lies in their ability to capture last mile point of sale data which helped them build their competitive edge over their rivals.

These firms have been competing based on their supply chains.

Why have FMCG and other industries performed better than Pharma? FMCG companies have adopted end to end supply chain framework. They have linked their supply chain planning and strategy to business strategy and planning leading to superior service and delivering by lowering cost and creating a competitive edge for themselves. Automotive, chemicals, mining, hi-tech, retail and food and beverages all of them have lower cash to cash cycle as they began their manufacturing supply chain streamlining in early 2000 and adopted operational excellence increasing their overall equipment effectiveness. This was done by reduction in set up time, downtime and improvement in performance rate. They also have used information technology to make movement of information and goods flow seamless reducing both stock outs and surplus at the same time. Forecasting and sales and operations planning as a starting point of all supply, logistics and sales planning have given them all these edge.

Pharma companies have no choice today but build more responsive and efficient supply chains. They will have to take outsourcing what they are not good at and economise with the help of 3PL. For this the top management should be the owner and the driving force. Once this is done supply chain will transform today's pharma player. Let's see how long these pharma leaders take to realise this.

What should pharma companies learn and do to prepare for a more competitive world that is emerging? They first and

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November 2014

SCM WORLD

GURU SPEAK

KNOWLEDGE

ACADEMIC ADVOCACY

HUMAN RESOURCE

Behavioral Supply Chains John Gattorna examines the influence of consumer behavior on supply chains, arguing that adequate responses to the wide array of challenges facing supply chains must take account of the particularities of human behavior. Gattorna spells out a range of observed patterns of consumer behavior. These include the existence of a finite number of consumer behavior patterns in any given market, the fact that the dominant behavior pattern can change temporarily in response to external pressures, more permanent changes in consumer behavior are internal to the consumer, and more than one kind of customer behavior can be observed within single corporate structures. All these observations clearly carry implications for supply chain configurations. Gattorna goes on to identify four kinds of buying behavior: collaborative, transactional, dynamic and innovative.

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his paper is designed to provide a more granular perspective than the traditional aggregate view that economists take of supply chains. In particular, I want to add a behaviourial dimension, and introduce a more dynamic methodology, capable of addressing the increasingly volatile operating environments that are likely to pervade future trading conditions within and between countries, whether developed or developing.

Dr. John Gattorna UTS University of Technology Sydney

November 2014

The objective of this paper is to develop a toolbox of creative methodologies that will add insight to what we already know about supply chains and point the way towards improved navigation of the cross-border movement of trade flows. From the outset, let us deal with some of the terminology

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issues. In my view, there is no difference between the terms supply chain and value chain, because supply chains done well equals value chains.

Regarding the term networks, these develop from local to regional to global, with correspondingly increasing complexity. The important thing to realize is that you should attack this growing complexity from the outside in, not from inside out as per conventional practice. Of course, the ultimate solution selected will be a combination of both.

Fundamentally, people, their respective behaviours, and the decisions they make in particular circumstances propel products and services along supply chains, so it is vital

GURU SPEAK The optimal result is obtained when all parties along specific supply chains, approach a degree of “alignment” in the way they think and act. that human behaviour is factored into all future value chain designs. This is non-negotiable if the objective is to achieve a finer alignment between buyers and sellers and a necessary precondition if we are to take operational and financial performance to the required next level. Understanding human behaviour is the elephant in the room but, unfortunately, too many executives are in denial about its pivotal influence, presumably because they do not know how to factor it into the performance equation.

And people are spread out along supply chains, in the form of customers, intermediaries, staff and management inside suppliers and the enterprise itself.

The optimal result is obtained when all parties (including outside influences such as government) along specific supply chains, approach a degree of “alignment” in the way they think and act.

Thus, looking at the operation of supply chains through the narrow prism of economics is not sufficient. Human behaviour must be factored in, just as the eminent economist, Robert J. Shiller, Professor of Economics at Yale University commented in the aftermath of the 2008 global financial crisis. He was acknowledging the human effect on the economy. See Shiller (2009).

Indeed, simply observing macro-flows of goods and services across or within country borders, hides the important detail beneath, and blunts the search for more predictive supply chain business models. In such situations, the emphasis is on reactivity, but there is a limit to reactive designs because of the premium cost attached to this modus operandi.

If we are going to work from the outside-in, we need a meaningful way of grouping customers into economically viable segments and then reverse engineering back into the enterprise from there. Most, if not all, conventional methods of segmentation used by the marketing discipline are flawed when used for the purpose of supply chain design. The only method that will adequately inform supply chain design is behavioural segmentation, grouping customers, consumers and users with similar buying values(and corresponding behaviours) according to the product

and service category under consideration.

Through our empirical work in companies drawn from many industries, and across numerous geographies in the period 1989–2012, we have found discernible patterns in the way customers project their demand for products and services. These conclusions are summarized as follows. See Gattorna (2010).

1. Customers always exhibit a small but finite number of dominant buying behaviours for any given product or service category, usually no more than three, but four at most (to give an 80 per cent fit to the market).

2. The preferred dominant behaviours exhibited by customers can change temporarily under the pressure of changing (operating) conditions such as lifestyle changes, government regulatory action, or the product life cycle itself. But behaviours usually return to the preferred position when conditions return to “normal”.

3. Where there is a permanent change observed, it is usually associated with a change in the customer's own internal decision-making group.

4. Finally, it is not unusual to observe more than one kind of buying behaviour inside a large corporate customer, where different groups are involved in buying different product or service categories.

These observations explain two phenomena: 1. That customers can exhibit more than one buying behaviour, under varying conditions, and hence more than a single supply chain configuration is required to cope with this plurality; and, 2. That such changes can be brought about for many reasons, including government regulatory actions – this is the connection between supply chain designs based on customer behaviour, and the impact of different government policies (such as tariffs, customs duties, wages, and development incentives) which can either help or hinder product and service flows.

We can now say with some confidence, that the most common buying behaviours and behaviourial segments observed in the marketplace are the following four types: Collaborative, transactional, dynamic and innovative solutions.

What is also very significant is that as we look at how customers buy certain products and services in different countries across the world, the only thing that changes

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November 2014

GURU SPEAK Elements of the ‘Dynamic Alignment’ framework

contact with customers in the field; and, 2. Of perhaps more relevance in the case of aggregate flows of product important in trade flows between countries is the demand variability analysis otherwise known as the coefficient of variation. The methodology is as follows: a) Profile the total demand, by-customer or source, by-year for say two to four years to understand overall patterns. Demand should be broken down by major product categories,

is the mix of the originally-identified buying behaviours. We put this down to the influence of national cultures superimposed on individual or business unit buyers, see Gattorna (2010).

We can set up the same supply chain configurations around the globe, and they will be just as relevant from one country to another.

This is a particularly important finding because it means that we can set up the same supply chain configurations around the globe, and they will be just as relevant from one country to another. Of course, the prevailing government regulations and competitive activity could influence things in specific locations, but it is unlikely any fundamentally new segments will suddenly emerge out of nowhere. This is good news for multinational companies as they design their regional and global value chain networks. It is also good news for the future work of the WTO. At the enterprise level, in reviewing regional and global markets, there are really only two appropriate methods open to companies to surface the underlying demand patterns. These are:

Indeed, the more accurate term these days would be value networks.

November 2014

1. Using a shortened version of the wellknown conjoint analysis market research technique, where a sample of customers are interviewed (qualitatively and quantitatively) face-to-face and by telephone. A draft “straw man” segmentation is prepared as a result, and this is then validated with further direct

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b) Then calculate the co-efficient of variation (CoV) by customer or product category in a few sensible time buckets, such as monthly or quarterly, over the selected period. This will give a perspective on the relative variability of different customer's demand, c) The CoV is a method of comparing the variability of different data sets. It is calculated by dividing the standard deviation by the mean, expressed as a percentage. By setting some business rules, it is possible to distinguish between volume flows with lower variability (base load or lean), compared with volume flows which has a higher variability (agile).

The term “supply chain” was first coined by Keith Oliver at Booz Allen1 in 1982. I have long been uncomfortable with this term but have chosen instead to continually redefine its scope over time, rather than introduce new terminology, which in turn just adds to the semantic confusion.

Indeed, the more accurate term these days would be value networks, as argued in my book, Dynamic Supply Chains, see Gattorna (2010). And networks they are, spreading from local to domestic national trading environments, becoming regional as more countries are involved in strategic sourcing and/or distribution strategy, and ultimately, global. The complexity of these “networks-ofnetworks” increases exponentially as the geographic scope widens, and the number of links (both transport and electronic transactions) and nodes (facilities of all types and activities within) increases.

LEAD STORY

Unlocking the Value of

Pharmaceutical Supply Chain

November 2014

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LEAD STORY

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t is well accepted that going forward firms will compete on their supply chains – meaning the supply chain will be integral to the profits of a firm. Thinking of our supply chain as a profit enabler is a new phenomenon. Accelerating technology trend means the traditional supply chain concepts will no longer apply. To succeed in the coming decade and beyond, pharmaceutical firms must reinvent the supply chain network to align with new expectations, market opportunities and technologies. Traditionally, when we think of supply chains, we think of CFAs, warehouses, cold chains, logistics players, customs agents and contract manufacturers. All operating in silos.

The Institute of Supply Chain Management, supported by the Organization of Pharmaceutical Producers of India and SCMPro organized a seminar on pharma supply chains, themed “Unlocking the Value of Pharmaceutical Supply Chain.” At a time when we think about the supply chain as silos, and that too most often an outsourced activity, the need to understand the drivers of value in the supply chain becomes crucial for any enterprise. By now a new cliché too has emerged – the future belongs to the firm with the better supply chain. If this is true, we need to look at how we can build a better supply chain. The first action element is to understand what we mean by a better supply chain. We need a supply chain that is aligned with the strategy of the enterprise, which has a seamless series of mutually reinforcing processes. This alignment of enterprise strategy and the supply chain gives the firm an ability to tap into the potential of its supply r.

In most firms, supply chain forms a large section of the total firm.

And if we understand supply chain as one encompassing the supplier, manufacturer and customer, supply chains offer a unique opportunity for pharmaceutical firms to realize increased value from its supply chain. Instead of focusing on optimizing the performance of individual pieces of the supply chain jigsaw, firms need to focus on the entire chain and work towards creating true supply chain surplus, from across the chain. In this series we have Mr. K Hariram, former MD of Galderma India speak about the significance of logistics and supply chain for the pharmaceutical sector. This is followed by a talk on “Challenges of Managing Supply and Demand” by Mr. Shailendra V. Bobhate, Director – Supply Chain and Operations, EPD India, Abbott Healthcare Pvt. Ltd. Followed by Transformational Themes in Pharma Supply Chain by Nikhil Pingle; Associate Director; Management Consulting, Strategy and Operations; KPMG Advisory Services Private Limited.

The next in the series was “Enhancing Supply Chain Effectiveness through Analytics” by Mr. Hitesh Sharma and Mr. Pratin Vete of Ernst & Young Pvt. Ltd and rounded off with a simulating panel discussion on “End to End Supply Chain visibility”.

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November 2014

LEAD STORY

Pharmaceutical sector Significance of Logistics and Supply Chain for

Pharmaceutical sector In a typical pharmaceutical firm, 50 percent of the operations is the supply chain. All the others – like sales and marketing, HR and Finance make up the rest of the 50 percent. The two simple words Supply Chain encompasses a very wide spectrum of activities – right from sourcing to the end customer, and everything that happens in between. There are significant opportunities in the pharmaceutical supply chain to create value to the enterprise. Mr. K Hariram, former MD of Galderma India speaks about the significance of Logistics and Supply Chain for the Pharmaceutical sector.

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T

he significance of logistics and supply chain has been understood by the members of the supply chain community for a long time. As people who make it work, we are well aware of the importance of supply chain to the firm's profitability. Supply chain practioners rue the fact that the marketing, sales and forecasting professionals have a very sketchy understanding of logistics and supply chain management.And therein lies the problem. In spite of the significant advances in information technology and our ability to collect and analyze data, the pharmaceutical industry is grappling with forecasting.

There is a tremendous amount of adhocism in the forecasting process, and this leads to a mounting pressure on the supply chain professionals within the firm for the poor forecast.

LEAD STORY The topic of the day has two aspects – Logistics and Supply Chain.

Logistics is operational, and the second – supply chain - is strategic.

Since supply chain is a strategic domain, it involves all important functions of the organization – from the CEO to the last sales person out there in the field. Unless there is complete integration and collaboration across the entire firm, we will not be able to see the implementation of the strategic vision of the organization. It is crucial that the organization foster a spirit of collaboration across the silos, when it comes to supply chain management.

And SCM should be a part of the strategy. That is important. There are a few organizations who have managed this, and they are reaping the benefits. However, there is a huge gap between theory and practice. We do have significant opportunities coming up. Especially as technology innovations gather speed. And some of these innovations could be disruptive.

In the Indian context, the pharmaceutical sector does face some constraints. We are well aware of these constraints. These challenges run the gamut of regulatory frameworks, political posturing, primitive infrastructure, and a lack of control over the last point, as the product reaches the patient. Take a simple example – most products come with an instruction that it has to be stored below 25 degrees Celsius.

There is a reason for this instruction.

At temperatures above 25 degrees, the active ingredients in the formulation may breakdown, leading to a loss in potency.Imagine a formulation going to Rajasthan in the summer, where the ambient temperature in the shade is in the high forties. Think of it, all the efforts put in by a team of supply

chain professionals to deliver the right product at the right quality is negated by the last mile. We are not sensitive to these aspects when it comes to the supply chain.

We had an issue with one of our products – Benzac AC – the ingredient was benzoyl peroxide. It is a topical application for acne. We started getting complaints of skin irritation – especially in the summer months. When we tested the control samples kept at the manufacturing site, everything was normal – as it should be. Till one fine day, we figured out that the benzoyl peroxide was getting converted to benzoic acid when the temperatures go above 35 degrees.And therefore the irritation when it is applied. This product was lying on the chemist's shelf for three months at temperatures above 40 degrees. A good product gets a bad name for no fault of the manufacturer. Unless we take a holistic approach, including the last mile, we will suffer. We need an integrated and collaborative approach in our supply chains.

The multinational pharma companies are today going in for contract manufacturing, sometimes, decided on a principal to principal basis. They are probably not in control of the procurement process for raw materials. But nevertheless, partnering with them from the beginning will ensure that we have the right product at the right time and the right place in the right manner. We will not focus on the word right cost, because we have a few constraints o pricing. Given these constraints, as supply chain professionals, we need to keep pushing the boundaries of knowledge, so that we continue to deliver value to the ultimate customer – the patient.

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There is a tremendous amount of adhocism in the forecasting process, and this leads to a mounting pressure on the supply chain professionals within the firm for the poor forecast.

These challenges run the gamut of regulatory frameworks, political posturing, primitive infrastructure, and a lack of control over the last point, as the product reaches the patient.

November 2014

LEAD STORY

Challenges of

Managing Supply and Demand Normally, firms are caught on one of the following scenarios – either supply exceeds demand or demand exceeds supply. It is unheard of to have supply match demand. Many prefer to operate in a market where demand exceeds supply, while some strive for matching supply and demand.

However, we need to do what is good for business. Mr. Shailendra V. Bobhate, Director – Supply Chain and Operations, EPD India; Abbott Healthcare Pvt. Ltd. speaks on the challenges of managing supply and demand in the pharmaceutical sector.

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irms find themselves caught in either a supply exceeds demand scenario or demand exceeds supply scenario. Supply chain professionals would like to operate in a situation of supply exceeds demand – this makes for easier operations for the supply chain professionals. But this scenario is not good for the business. The best possible scenario for a business is when supply is catching up with demand. It is practically impossible to meet the supply equals demand scenario.

The growth in the pharmaceutical industry is driven be demand side impetus, supply driven causes and policy frameworks which affect both demand and supply. We are aware of the policy changes over the past few years – and its impact on both supply and demand.

The three key factors that drive demand are accessibility, acceptability and affordability. There are a few other minor factors. The major demand

November 2014

22

drivers for the pharma industry are identified as follows: It is expected that India would spend more than USD 200 Billion on medical infrastructure over this decade. Apart from this, most firms are now exploring the tier 2, tier 3 and rural markets. Over and above these, more than 160,000 hospital beds will be added over the course of the decade. To add to this, a clutch of government schemes like the NHRM are improving accessibility to the larger masses.

As we look at the acceptability quotient, increasing literacy levels are raising health care awareness.

Increasing number of people are demanding health care services. Alongside the rising literacy levels, the tendency to self-medicate is also rising. This is music to the OTCmarkets. There is also a discernible trend towards prevention rather than cure – what does this mean to the industry – vaccine sales are set to grow 20 percent and nutritional products too will see rising sales.

LEAD STORY The third driver is affordability – especially for a country like India, where 60 percent of the population is poor.As India recovers its growth path, middle class is set to witness robust growth – it is expected that 73 million households will be added to the middle class in the next few years.

This means that health insurance numbers too will rise- it is expected that an additional 650 million people will be covered by health insurance products by 2020. Add to this the governments schemes for rural health, and the price control on medicines, we will see more and more of our population demanding better health care services.

Price controls are a double edged sword – on the one hand they threaten the profitability of the pharma sector, while, on the other hand, they expand the pool of consumers, by bringing more patients into to the formal health care system.

Apart from these three factors, there are other catalysts like a growing population – India is set to become the most populous country very soon.

This means, the potential pool for health care services will expand. At the same time, we will see longer life expectancy for Indians – which means there will be an increasing population of the elderly, who will require medical attention. Add to it the emergence of lifestyle diseases like cardiac problems and diabetes, and the prevalence of newer diseases, the demand for pharma sector is set to witness robust growth.

The supply drivers for the pharma industry are quite diverse. We have a range of patented drugs which are likely to be introduced to the country, boosting the growth of the pharma sector. At the same time, there is the patent cliff – an estimated USD 235 Billion worth of medicines are soon to

go off patent between 2011 and 2016. All these will come into the developing world as generics. Which means the generic segment in India will continue its 30 percent plus growth rate. To add to these influences, there is the emerging regulatory environment, which is boosting investments in the sector. There is also an increase in third party manufacture of drugs in the country.

Having looked at the demand and supply drivers of the pharma sector, we will examine the market characteristics of the sector. The Indian pharma sector is an emerging market.

It is dynamic, and SCM professionals experience it firsthand. India is one of the few markets where the pharma sector is growing at double digits – it is growing at around 12 percent.It is highly fragmented – the market leader has hardly 7 percent market share and there is a proliferation of brands and molecules. It is highly competitive. This is of significance to the supply chain – if the product is not available at the chemist – it will lose out to a competitor. The demand is volatile and acute still has around two thirds of the market share. Chronic is a smaller segment, in contrast to the developed world.

To add to all these, the regulatory environment is very dynamic – we have seen an average of one new regulation a week over the past two years!

Under these circumstances, supply equal demand is a scenario we cannot imagine.

However, there are a few things that can take us close to this ideal situation. One is end to end visibility – from raw material to the customer. We also need flexibility between our own manufacture and TPM. And being a high growth market, we need scalable supply chain and manufacturing models. To achieve this we need to drive better collaboration and partnership with our suppliers. It is up to the supply chain to overcome these hurdles and ensure that the product is available in the right condition across the length and breadth of the country.

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This means that health insurance numbers too will rise- it is expected that an additional 650 million people will be covered by health insurance products by 2020.

India is one of the few markets where the pharma sector is growing at double digits – it is growing at around 12 percent.

November 2014

LEAD STORY

Transformational Themes in

Pharma Supply Chain Transformation, as a process, is not evolution. It is akin to revolution. The business ecosystem we are operating in is not always in our favor. And we tend to get bogged down by it. Instead we need to think about these constraints as opportunities. What used to be called distribution transformed into logistics and today we are speaking about supply chains. And as we look ahead, technology will be the catalyst that will spur transformation of the pharma supply chain. Mr. Nikhil Pingle; Associate Director; Management Consulting, Strategy and Operations; KPMG Advisory Services Private Limited, takes a look at the transformation themes in pharma supply chain.

T

he Indian health care industry is showing steady progress. If we look at the infant mortality rate from the 1970s to 2009, we see a significant drop. Yet we are still around 40 percent higher than the developed world. In addition, we have a host of other issues – malnutrition, poor sanitation, unsafe drinking water, female health issues, and poor rural health. At the same time, there have been some very encouraging developments – we have seen efforts to improve health awareness, growth of private initiatives in health care –

November 2014

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we have seen the number of hospital beds double from 760000 in 2002 to 1550000 by 2010. We have also seen public private partnerships in hospitals and diagnostic centers. That is the story so far – there were some challenges, and some developments.

If we look to the future, two major trends can be seen – availability and affordability. The bulk of the challenges we face can be because of the non-availability of the product or facility at the place where it is needed most, and/ or the people who need these products cannot

LEAD STORY afford to buy them. The future will be defined by how we address these issues – jointly by the government, the health care industry and the pharma sector. There are quite a few positives here – the government expenditure on health care is set to go up from 1 percent to 2.5 percent of the GDP. The government is playing a dual role – of a provider and a payer. The Government is setting up health care facilities, and at the same time there is a massive effort to provide health insurance cover to the poor across the country. Going forward, we will see the ability to avail of health care services and the availability of these services– both increasing. This offers the pharma industry with ample growth opportunities.

These opportunities will come from growth in metros and Tier 1 markets, urban poor, rural population and infectious diseases and vaccines.

Unfortunately, the rural population is at the bottom of the stack in terms of priorities – quite a contradiction – where the services are needed most, is the least priority. This is something that the industry has to resolve – why is it that we do not focus on our rural population. There are a few imperatives to achieve this growth: The first is the industry needs to drive down costs. To do this we need to enter into a collaborative work ethic. The fruits of such collaboration can be seen in the FMCG and auto industries in entering new markets. One firm takes its products to a market, and other firms tie up with it to piggy back their products to the same market. And this is where the industry needs to leverage partnerships. This opens up a plethora of possibilities. Another imperative for market growth is focus through segmentation.

Globally, we are seeing US and Europe essentially flat, while emerging markets including India and Africa showing robust growth. Therefore, the focus of the global, as well as, Indian firms is going to be these emerging markets. The issue is going to be about margins- including branded products, branded generics and generic generics. Research shows that the Pre R&D margins are set to take a hit – from around 48 percent in 2010 to

around 43 percent by 2020. That will be a challenge to the industry.

We are at a unique junction – on the one hand we have an opportunity to tap new markets, new products and new customers, there is a need to improve reach, chronic products – which means stable consumption patterns. And all of these have to happen at a lower cost. That is where the industry is going to deliver going forward. If that has to happen, transformation has to happen across the supply chain – right from planning through sourcing (API, intermediates and raw materials) through manufacturing (including packing) through distribution right down to the last point – sale to the patient.

Beginning with planning – we have segmented the whole process into seven areas – the first three – strategy and philosophy, assumptions and parameters and planning and scheduling rules are about how planning should be approached. It is about planning strategy and how it is aligned with the business strategy.

What we have seen is that while a lot of these strategy, assumptions and rules are taken as they are, a lot of focus is around technology, setting up metrics and reviews, setting a structure and calendar for meetings and the process workflows within the gamut of sharing information across different stakeholders in the planning process. While this is fine, the future is about how we do things differently. We talk about rural distribution being a challenge, because we do not have visibility beyond the stockist, and we do not know what happens beyond that. It is difficult for us to forecast and plan in the absence of data.

A major part of the revenues of the pharma sector is from exports. To what extent are we able to collaborate with its customer to crash lead times? The lead time today is probably more than 180 to 200 days. This is an opportunity for the pharma companies to sit together with their customers and supply chains to reduce this lead time. The future is all about our ability to sit together to develop products for our customers.

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The bulk of the challenges we face can be because of the non-availability of the product or facility at the place where it is needed most.

We talk about rural distribution being a challenge, because we do not have visibility beyond the stockist, and we do not know what happens beyond that.

November 2014

LEAD STORY

Complexities of Distribution Channel in India-

Challenge or Opportunity?

The real challenge to any pharma manufacturer in India is ensuring their products are available on the store shelves across the country. Organized, modern distribution is largely absent in the country. Instead we have layers of small players, who control the last mile access. In the US, the company comes up with a product and then chooses the distribution channel. In India, we need to do it together. To top it all, the allocation of margins to these layers is not clear. This poses challenges for the pharma sector. Hitesh Sharma, Partner - National Life Sciences Leader, and Pratin Vete, Associate Director – Performance Improvement, of Ernst & Young speak about these challenges.

T

here are a few key trends that define the Indian pharmaceutical industry – and the one that attracts the most attention is the proliferation of brands. Studies by EY s show that 94 percent of the products launched since 2009 have failed to generate a sales of INR 2 crores. Such brands contribute 70 percent of new product revenue, while approximately 10 percent of brands contribute to 75 percent of the revenue. From the supply chain perspective, this 90

November 2014

26

percent, which has volumes but not value is the real challenge. The supply chain head has to spend considerable time and effort planning for these products. It is believed that new products are a growth driver for the industry. But what we are not factoring in is that over 90 percent of these new products will not exist three years ahead, or they are not growing. As a result of this, the growth of existing products slows down, and

LEAD STORY we launch yet another new product.

Another trend that is visible is the shrinking of the new product pipeline. EY experience has shown that over the past five years there has been a significant decline in new product launches – and this is across both domestic and multinational companies. Now we have a situation, where there is a doubt about the quality and quantity of the growth driver – the new products.

Associated with this, there is an ever increasing sales force with sub optimal quality. The past seven years data shows that there has been a doubling of the number of representatives visiting a doctor –from 100 to 200. A top notch doctor could have 500 representatives visiting her.

As a consequence, the time per representative has come down to 2 to 5 minutes. The industry's inability to attract right talent as representatives has led to a decline in quality, and as a result, the ability to build brands has taken a beating.

The industry is shifting from acute to chronic and from branded to generic. Concurrently, technology has led to the decline of the doctor's dependence on a medical representative for information about a product. The focus is shifting from portfolio focus to brand focus and from single stakeholder to multi stakeholder management. The industry today has the OTC, generics-generics, hospitals, specialty and super specialty segments. And each of them has its own supply chain dynamics. Another shift we are seeing is the change in focus from doctor to doctor plus patient. This means a change in the supply chain channels – there are large OTC brands that have started e-tailing their products.

There is a subtle channel transformation happening.

And then there is the issue of channel sustainability.

We are aware that 80 percent of our population is living in class II to class VI and rural India. And we are also aware that the formal supply chain – under the company's control ends in class I cities – the stockists.

Beyond them we have the wholesale chemists and an entity known as the hub chemist. These fall outside the control of the pharma company. The Hub chemist is at the cusp of the Class II and Class III town, having both a retailer and wholesaler license, with around 80 doctors and a same number of chemists who buy from him. And this is the entity who caters to 80 percent of the population, because that where the distribution has not reached. We have seen that in the generic –generic category, up to 80 percent of the volumes are happening

through the hub chemist. And for large brands, they contribute 30 percent of volumes. And their numbers are not large – there are around 15000 hub chemists. We are all aware of their existence. But we have not picked up the significance of their contribution to the supply chains.

The second significant part about But what we are the supply chain is the channel not factoring in complexity. If we look at the urban is that over 90 markets, the retailer has two major percent of these requirements – service within a new products quick time and better margins. And will not exist when we move to the Class II and three years below markets, the requirements ahead. change from service and margins to credit – generally upward of 45 days. And because they need such long credit periods, no distributor can sell to them – they can be serviced only by wholesalers. The important factor here is creditworthiness. And no stockist can guarantee creditworthiness of 750000 chemists. In a real sense, the stockist is an investor and the wholesales entities are the service providers. And we do not have any visibility here. We need to be aware of these complexities as we design our supply chains. India cannot afford the lean distribution models of the west, primarily due to the needs of our supply chains.

Any typical pharma company will have around 2000 distributors, out of which 500 would contribute around 75 percent of the sales

And while we do have a complex distribution channel, there is a significant skew – any typical pharma company will have around 2000 distributors, out of which 500 would contribute around 75 percent of the sales. EY had commissioned a study in Uttar Pradesh and Andhra Pradesh to study this skew. We found that around 1000 wholesalers contributed to around 35 percent of the volumes. And if we can get control over these, we could have significant control over the supply chain. Similarly, we need to identify the significant contributors among the hub chemists. And we end up with a substantial part of the supply chain under our direct control. If we can understand from where the major contributions come from and map them, we will be able to gain significant control over the supply chains.

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November 2014

LEAD STORY

End to End Supply Chain Visibility– Need of Partnering among Stake Holders From the source of raw materials to the end customer – which for a pharma company is the patient, firms need to track the flow of goods and information. This is critical for the pharma sector since adverse conditions during transportation can reduce the potency of the product and in some cases cause adverse reactions. To round off the seminar, a distinguished panel of industry experts debated on the issue of end to end visibility. SCMPro brings you edited excerpts.

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ormally supply chain is an invisible part of the organization – till something goes wrong. Then everyone notices the supply chain. At 100 percent no one says thank you, but at 99 percent, the knives are out. This is the experience of the supply chain professional. According to Sanjay, we know the big pieces of our supply chain. And we are trying to get them to work together. Arguably, the largest piece of our supply chain is surface transport. But we still cannot ensure that the driver who is driving the truck knows about the cargo he is carrying. Is he able to differentiate between potatoes and injectable? Therefore, what kind of care will he take and what kind of visibility will we have. And pharma companies have to depend on third party – in this case the truck owner – for visibility.

The need of the hour is to develop deeper trust among the different stakeholders – more than visibility. And in an environment where trust is higher than visibility, the

November 2014

chances that things go wrong are high. We need to improve visibility, but keep trust just as high. We need to also remember that the value of a medicine to a patient in the ICU is much more than the price.

According to Quateel, we need to be prepared for a more fragmented supply chain - and we need to be able to apportion accountability to this fragmented chain. We need to identify the primary, secondary and tertiary players and be able to hold them accountable for their role.

It is a normal tendency to create a monkey and place it on another's back, knowing they will struggle with the monkey. It is time pharma companies spend some time training the stakeholders about the expectations. In an experiment by Raveendran, he called all the transporters engaged by them and presented them with a clear guideline of how they will be evaluated and if they slip, they will lose business. This

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At 100 percent no one says thank you, but at 99 percent, the knives are out. This is the experience of the supply chain professional.

LEAD STORY

Panelists (left to right): Javin Bhinde, Syncore Consulting, Quateel Ahmed, Chief Marketing Officer, ACG Worldwide, B Raveendran, CEO, LBW Consulting Pvt. Ltd., Sanjiv Navangul (Moderator), Managing Director, Janssen India, Krishna Parab, Sr. Director–Supply Chain, Sanofi India Ltd., Rakesh Shah, General Manager– Supply Chain Merck Serono Ltd., Mohan Joshi, Strategic Advisor, SCHOTT Glass India Pvt. Ltd.

helped bring visibility to the chain. In this way, the complexity of the supply chain can be slowly addressed - we can see the supply chain consolidate and integrate. There will be no more surprises. Another factor we need to keep in mind is how we treat the stakeholders.

And since we are speaking about the transporter, remember, they are never treated well – they are made to wait outside the office, their payments are delayed and yet they are expected to provide excellent service. If we have to develop greater visibility, we also need a more humane approach to the stakeholders.

When the CFO asks for a cost cut, she is really asking for more profits.

And there are two ways to achieve this.

We are all familiar with the visible parts of the supply chain – the movers of products. At the same time there is a silent army working behind the scenes to keep the chain moving.

Mohan believes that in the Indian system, bad news does not travel at all – we are loath to bring bad news. However, we need to realize that if we receive the news in time, we can take pre-emptive action, to reduce its impact.

Simultaneously, the consequences of nonperformance should also be defined. Once the stakeholders realize that nonperformance will not be tolerated, they will align.

The use of technology is at the core of visibility. Supply chains will increasingly use technology, which will enable us to collaborate across the spectrum. According to Krishna, technology allows us to track our goods throughout its journey. Third part service

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providers have emerged who can provide the industry with real time visibility. But for that to happen, we need to jettison our cost based thinking, and embrace service quality.

There is a convergence of efficiency and effectiveness in supply chains. Pharma companies need to balance the long term advantages of visibility against the short term cost viability. Rakesh believes that transparency is the foundation of good partnerships, and partnerships bring visibility.

We need to resist the urge to cut costs without understanding its impact on quality of service.

At the same time, we as supply chain professionals need to take VUCA leadership leadership which can handle Volatility, Uncertainty, Challenge and Ambiguity.

However, according to Javin, we need to understand the desire to cut costs – everything we do is a function of the bottom line – either profit or profitability. We need to move from a cost centric thinking to a profit centric thinking. When the CFO asks for a cost cut, she is really asking for more profits. If this is the case, there are two ways to boost profits – one is to keep sales the same and drive costs down, and the other is to boost sales and the increased revenue will be able to absorb the delta costs. End to end supply chain visibility is less about technology and more about having the right mindset - of doing a win-win business.

November 2014

SMEs and the Supply Chain Management Challenge In an increasingly uncertain and complex business environment, Supply Chain Management (SCM) is a critical capability for all companies regardless of their size. This is particularly true for small and medium-sized enterprises (SMEs) as they compete on scope rather than scale, which requires an adaptable supply chain. Dr.Asad Ata from the Malaysian Institute of Supply Chain Innovation explores the SCM challenge for SMEs.

A

Dr.Asad Ata Assistant Professor at the Malaysia Institute for Supply Chain Innovation (MISI).

His research is based on exploring the topic of supply chains under emerging economies and high visibility supply chains. Dr. Ata has worked in the industry for twelve years on various Supply Chain IT, Telecom and e-Commerce projects.

November 2014

s the backbone of many economies across Asia, SMEs are key drivers of the remarkable growth that the region has achieved over recent years. It is estimated that SMEs comprise more than 98% of the number of enterprises in the Asia-Pacific region. SMEs promote business ownership and entrepreneurial skills. They are agile and flexible towards the shifts in supply and demand; attributes that are particularly important in volatile global markets. In addition, SMEs are engines for job creation.

SMEs often lack the SCM expertise that is found in larger

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companies. SMEs are limited by the insufficient resources and lack of skills required to design, build, and manage an advanced supply chain; capabilities that are critical for their survival. For example, SMEs have a difficult time accessing and understanding their capital requirements and managing finances effectively both domestically and across borders. Without a sound understanding of currency fluctuations, trans-border transactions and associated costs, these organizations struggle to compete. Also, while larger companies capture efficiencies by forming strategic alliances with core suppliers, SMEs are not equipped financially to enter into such partnerships.

There is a notable lack of studies that explore the needs of SMEs given their unique ecosystem and behavior.

n Organising management development programs through B-Schools n Organising training programs for low skill workers n Effectively deciding the pay and compensation packages n Effective dealing with Government agencies

Engagement & Training

Technology & Innovation

Financial Resources

n Combined investment in R&D and product

Easy credit availability n Easy bank loan procedures n Better procedure for financial management n Use of better technology to manage the transaction n

development n Exchange of new technology and innovative

practices n Effective use of expensive machinery

Procurement & Sales

Logistics & Storage

Efficient procurement from producers n More bargaining power with the large organisations n Branding of the local product n

There is a notable lack of studies that explore the needs of SMEs given their unique ecosystem and behaviour. A better understanding of their challenges can facilitate these businesses, and secure targeted assistance to enhance their performance. The agribusiness SME supply chains for instance, are mostly managed manually. Training these entrepreneurs to use and apply IT tools could

Low cost of transportation due to increase in scale n Higher returns on special trucks such as refrigerated trucks n Better storage infrastructure n Use of modern IT practices in logistics and storage n

improve productivity, and allow them to run their businesses profitably.

Access to information can provide a competitive advantage. For example, the availability of real time information on other markets and prices including the retail markets through existing technology such as cell phones can be a key source of advantage.

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November 2014

A research project proposed by the Malaysia Institute of Supply Chain Innovation (MISI) aims to study the flow of products, information, and money through the SME supply chain in the agribusiness sector.

Parallels are drawn between such supply chains in Malaysia and India. Some recent studies conducted in India have reviewed the role of financial models such as group lending methodologies geared to small businesses, while other studies have specifically targeted logistics issues. However MISI, aims to take a holistic view at SME Supply Chain context.

In general, innovation takes a backseat in the SME sector, and if any innovation takes place, it remains at the individual level.

November 2014

Some of the initial observations

by MISI researchers have shed light on SME business practices.

For instance, it is noted that some SME's tend to operate their business in a market condition they are most familiar with, and become alienated from innovative business practices. They tend to be na誰ve about new ways of doing business and satisfied to maintain the status-quo. The notion of value-add and spending on research and development activities is almost absent in this sector.

In general, innovation takes a backseat in the SME sector, and if any innovation takes place, it remains at the individual level.

We do find examples where SMEs have innovated in acquiring their fair share of the

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market at minimal risk. At the same time we also find that there is no active engagement in brand building or product development.

Consolidation can be the key to some of the most prevalent existing SME challenges. An example is exploring the possibility of a cooperative to foster deeper collaboration among the agribusiness sector SMEs. If a number of SMEs operating in the same market segment can be brought under one umbrella, problems such as finance, new technology, and innovative management practices can be handled effectively. Such an organization could help these enterprises to overcome the disadvantages of their small size and focus on their core competencies, while benefitting from the economies of scale that enhance their competitiveness.

For this purpose, we need to identify the SMEs operating in the same market segment. More often than not, most of the SMEs operating in the same market segment operate from the same location forming a cluster. Hence, it can be relatively easy to form an umbrella organization consolidating the SMEs in the cluster. The STAR framework propose by MISI identifies the major benefits of consolidation thereby enhancing the efficiency of the SME clusters.

SCM WORLD

GURU SPEAK

KNOWLEDGE

ACADEMIC ADVOCACY

HUMAN RESOURCE

In Part 3 of this Series, we discussed how to Build and Sustain a Supply Chain Function within an organisation. Core capabilities in supply chain execution are essential to delivering the results expected from the business strategy. In this part 4 of this series we will examine the many key elements of people delivering value in the supply chain. Stephanie Krishnan, Joe Lombardo and Raymon Krishnan continue with the series.

I

People and Competencies in the Supply Chain Execution Model

Like management in competitive sports, the process of defining a game plan, deploying specific tactics and reaching for the best results from a player's performance is similar in a corporate environ.

People performance is crucial to the success and sustainability of an enterprise.

Company strategies and tactical plans will have no meaning nor value unless the necessary capabilities to make them happen are put in place in the right areas of the organisation. This can only happen through attention to people and their competencies, and how these competencies are manifested as they are deployed in the organisation.

Silo configurations need to be eliminated and the focus should be on core capabilities that enable the supply chain to perform and deliver the targeted results.

For more information on the articles or to contact the writers please email info@lscms.org

November 2014

n many companies, top management define and cascade company objectives and strategies downwards.

These plans are then translated and ideally reflects the details of how the company goals and targets are to be achieved.

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All personnel involved in the supply chain must understand their position in the overall structure.

The People Factor Today, customer demands dictate the speed of supply chain execution.

This demand results in an everdecreasing tolerance for error, and less allowance for recovery. Short time cycles, fast response times and high service levels all need to be coordinated. Automation, through data processing, systems and instant information access, plays a big role in facilitating this. The derived benefits give us speed, accuracy and the ability to process huge and complex amounts of data in minimal time. This technological innovation however does not eliminate the need for competent people in the supply chain.

In Part 3, we explained how the Supply Chain spans across the entire organisation. Often the organisation do not fully appreciate the relevance and the interconnectedness of people and fail therefore to understand the importance of the organisation's supply chain model, and the impact they have on the outcomes of this model and the organisational strategy as a result.

Whilst no individual can be considered indispensable in their roles, the capabilities of collective people clusters, functions and departments may not be indispensable to overall success.

All personnel involved in the supply chain must understand their position in the overall structure. No

single person, group or function should exist unless they are connected and are contributing to the delivery of the product to the customer and/or consumer. If, however, people find that they are not connected and contributing, then their role should be challenged. It should be evaluated against the core capabilities in the business cycle, and redesigned to ensure that it does contribute, and utilises the capabilities of people in these roles in the best possible way.

Understanding the Value of the Right Competencies It is not uncommon to hear top managers say that despite hiring experienced people to do the job, evaluating competencies and past employment history, going through the myriad of interviews, hiring policies and on-boarding protocols, that they are not seeing the expected results and feel that the new hire falls short of their expectations. Why is it that experienced and skilled people who have shown good credentials both in academic achievements and past work experience, fail to deliver the expected results?

In seeking better outcomes, we often look to the selection and appointment process however, the problem actually starts before the interview process. To optimize human resources to deliver results, it is crucial to understand the capabilities required and environment in which they need to operate and deliver to the organisations goals.

So what is competency and why is it so important in the supply chain execution model?

The word competency could be a term confused and interchanged with many other terms and definitions.

Competency in this context can be defined as having the "ability to

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perform a task with a high degree of success" (Adapted from the Oxford Dictionary) and illustrated as follows:

Competency = Technical Knowledge + Business Experience + Ability to apply Having the right balance of competencies in an organisation creates the necessary capabilities to deliver performance, enabling the organisation to attain higher levels of success.

Competencies

Capabilities

<create>

Performance

<deliver>

Source: ESP Consult- Enabling Supply Chain Competencies

It is this link of people competencies, capabilities andbeing able to focus the abilities of the human capitalthat will make the difference in overall performance of the organisation.

Identifying Competencies Identifying and using competencies effectively is fundamental to managing performance.

Competencies are not easily identified by first impressions or limited contact with people. This is because a professional competence is related to an ability to execute a non-routine or complex tasks.

There are however some clues that will identify some competency types.

The most obvious personal characteristics of competencies are manifested in behavioural display of confidence,quick thinking assessments and in the ability to communicate with clarity but in general, most competencies can only be confirmed when tested in a scenario that requiresthe execution of specific capabilities and deliverables.

We can divide the various levels of competence and relevance to

November 2014

KNOWLEDGE requirements into 3 major groups, with some of their characteristics: 1. Strategic Competencies- Leading, Visualising, Anticipating, Simulating.

2. Communication Competencies - Connecting enablers, Clarity & Precision of messages, Factbased content, Diligence & manner of delivery, Empathy, Decisiveness.

3. Execution Competencies - Agility in behaviour, Simplification of Complexity, Recognition of appropriate situations & Impact, Timeliness of Actions, Initiative & Drive to tackle complex issues.

Competencies create capabilities, which in turn, delivers results.

These are competencies associated with delivering high-level performance, and which a reassociated with the ability to attain an organisation's strategic goals. If such competencies are manifested by individuals, teams and management then collectively these competent abilities would be a huge asset within the organisation's control.

Developing the Competency Model As companies and organisations work in different ways, developing the right competency model that fits the company business model and execution capabilities is crucial. It is important that collectively, a company creates the necessary capabilities in the organisation to achieve and sustain their company business strategy.

COMPETENCIES TASK PERSONAL COMPETENCIES COMPETENCIES

1. Performance

Delivers Results

2. Capability

Applied Competencies

3. Competency

a. Task Competencies b. Personal Competencies

Fig 1: High level drivers for achieving performance Source: ESP Consult- Enabling Supply Chain Competencies

This model illustrates the importance and relevance of defining and structuring a competency model with a visual clarity. This is fundamental to building the capabilities to deliver the desired and expected performance. The next step is the analysis of the key competencies groups and categorise them into Task Competencies & Personal Competencies.

Task Competencies will cluster all job and technical related skills and experience, and sub-divide them into sub groups- 'Knowledge Base' and 'Skill Sets'.

Personal Competencies cluster all the personal skills and related personal attributes into sub-groups such as 'Attribute Bundles' and 'Performance Drivers'.

In Fig 3 the full competency model is illustrated using a bottom-up approach.

The core part of the model is capturing the competencies. It is a very important process that will need a degree of time and effort to design and deploy within the organisation. The starting point should be the second and third levels of the organisation from the CEO through the rest of the organisation.

PERFORMANCE

Fig 2: Illustrates the core composition of business competencies

CAPABILITIES

Source: ESP Consult- Enabling Supply Chain Competencies

Competencies create capabilities, which in turn, delivers results. As illustrated in Fig1, converting key terms into relative definitions, we can build a coherent and effective model. Using this simple principle we can develop the model to link competencies to enable capabilities that will facilitate the delivery of supply chain performance results.

In fig 2 below, we start to build the model from a bottom up approach. This approach will give a

November 2014

more accurate dimension of the competencies already available in the organisation and the ones that will need to be developed or need to be acquired.

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COMPETENCIES TASK COMPETENCIES

PERSONAL COMPETENCIES

Fig 3: The Competency Model illustrated from a Bottom-up Approach Source: ESP Consult- Enabling Supply Chain Competencies

Expanding the Task and Personal competencies is not

KNOWLEDGE included in this article as it involves some deep analytical processes. However, we can share some of the key elements that form the characteristics of these competencies for reference. a. Knowledge-Based Competencies are based on the industry sector specifics, experience, exposure and industry technical know-how.

ensure that the capabilities to deliver high performance are deployed effectively.

Conclusions

The competency matrix is a fundamental blue print of the human capital in an organisation

c. Attribute Bundles are competencies that are acquired through work exposure, experience, technical knowledge or special training, examples of leadership, value creation, adaptive working styles and personal attributes.

As we have seen in the last four parts of this series, the supply chain is a crucial function that spans across the whole organisation. The closely synchronised cross-functional processes required to drive a high performing supply chain execution model puts people in a key role to create the capabilities that deliver performance and achieve results that meet the strategic goals of the organisation.

d. Performance Drivers are competencies that make the difference between achieving mediocre & excellent results which are essential to enabling sustainable performance & enterprise growth.

In part 5 of the series we will be looking at the risks and costs in the supply chain and how management need to address external factors that can affect the performance levels of the supply chain execution model.

The competency matrix is a fundamental blue print of the human capital in an organisation. The matrix needs to be refreshed and kept relevant, at least every two years, to

Note: The charts contained in this series, are designed for illustration of the point of principle and are not intended to represent the optimum supply chain model nor the structure of any specific company or industry.

b. Skills Sets are based on personal core skills and management skills and the application to a specific role.

EDUCONNECT

Supply Chain ProfessionalsFrom Campus To Corporate-How To Make It Smoother?

From distribution to supply chain management â&#x20AC;&#x201C; the function of getting the right product to the right place at the right time has become a complex process.

Internationalization of markets and sources, and the rise of multi modal transport have created a huge demand for skilled supply chain professionals. Unfortunately, there are not enough takers for a formal course in supply chain management. TO add to it, the industry feels that the graduates who come out of some of the institutions do not possess the right skill set. The need of the hour is for a meaningful course in supply chain management, with care taken to ensure exposure to real supply chain situation.

Dr.P.Chandiran, Associate Professor, Loyola Institute of Business Administration, Chennai lays out the institutions efforts to create industry ready supply chain professionals.

S

upply Chain Management is gaining more importance in Industry today.

Organizations like to have more focused professionals, who can understand, evaluate and improve the performance of extended supply chain connecting their organization with other supply chain partners. Similarly logistics sector is growing moderately and many professional warehousing and transportation services companies are entering into our market. There is a large gap exists between supply and demand of supply chain and logistics professionals in these areas.

Prof. Chandiran B.E.,M.B.A.,Ph.D., Associate Professor Centre for Logistics and Supply Chain Management Loyola Institute of Business Administration Chennai

November 2014

Very few institutes are developing managers for the areas mentioned above and that is not enough. Prospective PGDM candidates, who want to join management institutes, do not look at Operations or Supply Chain as the career option. Even though the logistics sector is growing, whether it is roads, aviation, railways, containers or the use of various modes of transport, the amount of executives and the technical knowledge in the sector is quite low. But in the manufacturing part

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EDUCONNECT of the curriculum, people have an understanding of different technologies so that they can find a natural way to enter those sectors. In the areas of logistics there is a great need for education, but there are not enough institutions that offer training in logistics.

Management Institutes and other Professional institutes mostly do not have a separate course like PGDM in Supply Chain Management. Mostly, these institutes offer PGDM with specialization in Operations and SCM. In most of these institutes, SCM is part of dual specialization that is being offered. In this context, management institutes and the teachers should look at better ways of imparting knowledge, skills and attitude(KSA) to prospective SCM Professionals. This article tries exploring KSA framework for developing supply chain professionals.

Knowledge: The curriculum for SCM should be updated and revised to meet the industry requirements. As a teacher and researcher, I see Supply Chain Management is still evolving and the practices are not still streamlined.

Students are asked to select one industry and study its supply chain in detail.

They study in terms of their financial performance, assets turnover, supply chain length, cash to cash cycle time, inventory performance, IT implementation and use of analytics in supply chain decision making. Students should do field studies related to supply chain. They can study the length of the supply chain for a product, routing and scheduling of deliveries and pickup for retail stores and manufacturing, routing and scheduling for on-line stores, routing and scheduling of people for software companies and educational institutes. Games also can be used to

enhance learning for students.

Skills: Analytic skills are very much part of any SCM curriculum. Basic skills in the area of statistics, mathematical modeling, spreadsheet usage with Excel and Excel solver are must for the students.

Problem solving skills and decision making skills can be imparted by using many case studies. The case studies should focus on supply chain problems in different industries. For example, the Supply Chain problems in fashion industry are different from FMCG industry. The different courses offered in the area of operation and supply chain should be loaded with relevant case studies so that students get exposure in solving different supply chain and logistics issues. Activity based Games like Beer Game and other supply chain simulation games improve decision making skills. These students are required to learn writing skills and more focus should be given for report writing.

Even though the logistics sector is growing, whether it is roads, aviation, railways, containers or the use of various modes of transport, the amount of executives and the technical knowledge in the sector is quite low.

Attitude: Ethics and discipline are very important for supply chain professionals. Ethics and values should be imparted to students through cases, competitions and by institution's ethical practices.

Responsible procurement should be part of the course on sourcing. Green practices and importance of environment should be inculcated through activities, visiting bio-reserves and awareness programs.

I and my co-faculty have tried some of the actions mentioned above in our institute. It also resulted in better output and feedbacks from employers are positive. I hope other institutes also should do something in this line to produce better supply chain professionals.

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The different courses offered in the area of operation and supply chain should be loaded with relevant case studies so that students get exposure in solving different supply chain and logistics issues.

November 2014

SCMPro CLASSROOM

Safety Stock Piyush Shah Director ISCM, Research Editor- SCMPro

Good customer service needs a high level of inventory, but cost optimisation demands a much lower inventory. It is this precise trade-off that makes inventory management a really interesting topic. This is the third article on the inventory management in the Classroom series. In the first we discussed the basic inventory decisions of where to stock, how much to order and when to order. In the second article we discussed inventory classification. In this concluding article we would discuss ways and means of breaking the inventory trade-off.

T

he Economic Order Quantity (EOQ) formula developed in 1913 by Ford Harris (yes, that was more than a hundred years ago!!) was probably the first attempt to highlight the concept of a trade-off. Holding costs are directly proportional to the order size while ordering costs are inversely proportional to the order size. Thus, if the order size were to increase, the holding costs would rise and the ordering costs would fall.

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The formula was very useful in an era where a majority of the costs were variable. However in today's scenario, the formula is probably only an academic tool that can demonstrate the concept of tradeoffs. In a manufacturing facility that is not fully utilised, the setup cost would be close to zero. Also, since most employees are salaried and not working on a piece-meal rate, the change in number of orders would not have a linear impact on ordering costs.

Per se, the EOQ concept is perfect to learn, but cannot be applied in real life.

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One of the easiest ways in managing the tradeoffs between

November 2014

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SCMPro CLASSROOM customer service and inventory costs is the concept of service level. Let us have a look at a simple example to understand the concept.

The table above represents the demand for the last 200 days and arranged in descending order for a retailer for some product. The average demand is roughly 380 units per day. If the retailer wants to never have a stock out, that is a 100% service level, he would have to stock 516 units. A 99% service level would mean that 2 stock outs are allowed in 200 transactions. Thus the stocking policy would be the third highest value, which is 486 units. Similarly, for 98% service levels, the stocking policy would be 486 units, the 5th highest value. The table below highlights the various stocking policies for the different service levels.

Service Stocking Increase Level policy in stock 100% 516 30 99% 486 10 98% 476 4 97% 472 3 96% 469 An important observation, to increase the service level from 96% to 97%, the increase of stock would be just 3 units. But to increase the service level from 99% to 100% the increase in stock would have to be 30 units. We clearly observe that a much higher level of inventory would have to be maintained to create higher service levels. As the service levels are increased, the safety stock increases at a much faster rate.

Thus, at some point the increase of stock may not make it worthwhile to increase the customer service.

This is the simple basic idea of selecting the level of safety stock. For a high margin product, a retailer may have a higher safety stock. Per se, a product with high cost of stock outs, would need a higher safety stock and a product with high inventory costs (or obsolescence costs) would need a lower safety stocks.

This quantum of safety stock depends on the extent of variability in data. If the demand (or supply) data has high variability, the safety stock needed would

be higher.

Pooling Another way of managing the variability is called pooling. The concept of pooling is that variability reduces when multiple independent data streams are merged together. Thus with reduced variability the safety stock need would be lower.

Take a simple case of two service depots each having a demand for an average demand of 60 units per day for a component. We can assume that the demand is normally distributed with a standard deviation of 15 units per day. The procurement lead time is assumed to be one day. For a 99% service level, each of the units would have to maintain a stock level of about 95 units. Thus the safety stock would be 35 units at each location (=95-60) to make a total of 70 units. If all the customers could be served from one location, the same service could be provided with a stock level of only 170 units. For the demand of 120 units the safety stock would this be only 50 units. This is a significant reduction from the 70 units needed earlier.

Per se, a product with high cost of stock outs, would need a higher safety stock and a product with high inventory costs would need a lower safety stocks.

Pooling can increase the transportation or warehouse cost. But, it can lead to a significant reduction in inventory. In the above case, if instead of 2 facilities, we had merged 10 facilities, the requirement of safety stock would be less than one third. This reduction can be a huge cost savings for e Commerce firms as they generally replace more than a thousand retail outlets with a few warehouses.

The caveat in pooling is that it works only if the demand at all the pooled locations is completely independent. If all the sites have a peak on the same day, say on weekends, the saving from pooling would not be lower.

Conclusion As a policy higher customer service would need higher safety stocks. The level of safety stock is decided based on the cost of keeping the higher inventory and the marginal benefit of saving the additional customer. For the same service level, higher variation in demand data leads to a higher safety stock. By pooling inventory the variation can be reduced significantly and thus higher service levels can be achieved with lower safety stocks.

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The caveat in pooling is that it works only if the demand at all the pooled locations is completely independent.

November 2014

SCM WORLD

GURU SPEAK

KNOWLEDGE

ACADEMIC ADVOCACY

HUMAN RESOURCE

On Measuring

Company Performance within a Supply Chain Emerging research strengthens the connection between supply chain performance and a company's financial performance. The focus on integrating functional internal processes has expanded to include the need for integrating these with external processes of business partners.

This need for enterprise efficiency is compelling companies to review, to identify, and to adopt supply chain initiatives. This research investigates the use of common measurement metrics in an attempt to determine which one(s) are most useful for measuring performance as companies implement SCM practices. We bring you excerpts.

M

uch of the effort to model the workings of supply chains has been motivated by the belief that its underlying concepts are so logical that benefits are bound to follow successful implementation. The same kind of reaction was experienced as a part of the management information systems (MIS) movement several years ago. Although the use of the MIS term has faded and given way to information technology (IT), there is still an inescapable logic component that continues to prompt continuing and expanding research.

The same mindset is driving the studies to determine how to measure performance progress in supply chains in order to ensure that the benefits are realized.

are not yet realizing their full potential.

The focus on integrating functional internal processes has expanded to include the need for integrating these with external processes of business partners. This need for enterprise and overall supply chain efficiency has compelled companies to review, evaluate, and consider the adoption of SCM concepts. Although this need is recognized, a primary decision must be made as to where a company should invest time and money to enhance financial performance. Once the overall financial performance of the chain is evaluated the operational performance measurements for each member should receive priority attention. Our research focuses on how managers perceive whether the adoption of supply chain practices actually contribute to a firm's performance. In addition we will look at the usefulness of selected metrics that might be used to measure performance of a supply chain member.

At first it seems logical to measure only the aggregate output.

However, the ownership of chain members is distributed over several companies that must ensure their survival by profiting from membership. Our research addresses methods of evaluating company performance for individual member companies that practice supply chain management (SCM).

The linkage between supply chain practices and a company's financial performance has solidified with recent research.

Research thatfocuses attention on the entire value chain's profitability demonstrates that each member of the chain is inescapably linked to the chain's other members and impacted by their performance. Even bolstered by the internet to aid in linking members it is clear that most chains

November 2014

Some researchers refer to a report that included 861 firms in which most were unable to document any significant return on investment (ROI) from SCM technologies. Recent work

by Boody et al. addressed collaboration between two adjacent firms in a supply chain but performance measurements were not addressed. D'Avanzo et al. classified supply chain performers as 'leaders, transformers, decliners and laggards' in an effort to segment companies by performance over two

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distinct periods. Most of the modelling of supply chain issues has originated in the industrial dynamics area and is built upon the work of Jay Foster's study of 'pipeline management.' Chan and Chan present the use of a multiagent system (MAS) to mimic the whole of the supply chain. MAS would centralise many decision making issues and allow for quick recalculations of alternatives. Most models are based on a closed system where the number of variables is limited. As most supply chains are open systems, models are never likely to account for all relevant factors Researchers have identified six metrics for measuring supply chain improvement:

are appropriate for strategic decisions, but daily operational measurements might be supported better with nonfinancial measures. Inventory performance is an indicator of how well the firm is transforming its inputs into the required outputs to fulfil market demand. Cycle time measurements allow the company to quantify how efficiently the company is completing market demand.

Clearly the shorter cycle times are preferred to facilitate the flow of products within the supply chain.

Inventory and cycle time performance are clearly useful information to share with other members in the supply chain. The fact that the study did not find that firm financial measurements for SCM practising firms did not outperform non-SCM firms is puzzling and makes us question it as a suitable measurement for supply chain performance. The reasons for this may confirm the concerns expressed by Brynjolfsson (1993) suspecting that part of this problem from previous studies is a result of the measurement technique used to measure performance and may require large changes in capital stock to impact rates of return. Earnings are more directly related to sales and product margins. The benefits of lower inventory levels, increased inventory turns, and reduction in production cycle times more directly impact operating capital which may not have a direct influence on earnings. It is reasonable to expect that financial performance will eventually be realized or else SCM will be replaced with some other methodology/model for linking customers to suppliers.

Vonderembse et al. (2005) asserts that while technically control of individual firms is usually separated by whatever ownership existed before they joined the supply chain and that they realize their chain must be effectively linked together in order to successfully compete with other supply chains. Thus developing mechanisms that will influence decision-making to favorably affect the chain's performance will assist the individual firm to achieve its goals as well as the other chain members. Our findings indicate that the use of internal firm performance measurements, inventory and cycle time, offer the best metrics for positioning their company into a supply chain network.

(1) Extent of EDI implementation.

(2) Suppliers' data accuracy.

(3) Shipping delays by suppliers.

(4) Improper deliveries by suppliers.

(5) Production time by OEM. (6) Delivery time from OEM to end-user.

Conclusions The results of our study appear to indicate that companies should focus on the following performance indicators at the firm level: Inventory Measurements- There appears to be no question that the inventory measures are indicators used by managers to assess their performance within the supply chain.

Cycle Time- The cycle time is clearly related to inventory measurements and also there appears to be no question that it is a commonly used measure of performance within the supply chain.

Financial Performance- The usefulness of financial performance appears less certain. While it is clear that businesses must enjoy financial success their routine assessment of the supply chain is less likely to operate based on this measurement alone.

This research was published in the International Journal of Production Research; Vol. 47, No. 9, 1 May 2009, 2449â&#x20AC;&#x201C;2460

The first two indicators are clearly viewed as more important than financial performance for ongoing decision making in a supply chain. While financial performance is ultimately important to each member of the supply chain the statistical results do not indicate that it is more important to firms engaged in supply chain management than to those firms that are not. These results support the proposition of Maskell (1991) that financial measurements

P. Richard Martin - Coastal Carolina University, Wall College of Business, 230-C Wall Hall, Conway, SC 29528, USA and J. Wayne Patterson - Clemson University, College of Business and Behavioral Science, Management Department, 105 Sirrine Hall, Clemson, SC 29634, USA

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November 2014

SCM WORLD

GURU SPEAK

KNOWLEDGE

ACADEMIC ADVOCACY

HUMAN RESOURCE

Business Culture and Leadership Learning from the World's most Successful Sports Team Behind every successful leader is a vibrant culture that engages and energizes employees. In almost every case, that culture has been defined, shaped and personified by the leader. Business schools spend a lot of time training students to become leaders, teaching skills and increasing knowledge aimed at turning smart, young people into effective leaders. Company training programs pick up where the schools leave off. Consider, for example, programs on workplace diversity, with their emphasis on communication and team building. A critical component of team building is culture, because if teams are to work effectively all employees must understand and embrace the culture of the particular group and business. There's no doubt that today, a leader's success depends on how he or she moulds and develops that culture.

S

haping a culture is a formidable task, since many of the valuable qualities a leader might have are never taught in a classroom. They can be learned, but only from life experiences and shared experiences. Emotional maturity, authenticity, and a strong character are all essential if leadership in a culture-driven company is to be effective. There's no better example of defining cultural leadership than looking at some of the world's most success sports teams where culture and team work largely dictates the ultimate

November 2014

performance.

In recent Logistics Executive Group Newsletters, we have highlighted the significance of Employee Commitment in Business Success and the May Newsletter from Niamh NĂ­ BhĂŠara, our London based MD for UK & Ireland, highlighted the value of Executive Performance Coaching in developing leadership excellence and enhanced organisational performance.

This month, we share some insights from the best book on Leadership had

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Kim Winter Global CEO, Logistics Executive

Darryl Judd COO, Logistics Executive darrylj@logisticsexecutve.com

HUMAN RESOURCE we've had the pleasure of reading, the recently published “Legacy” What the All Blacks can teach us about Business and Life, by James Kerr. Kevin Roberts, CEO Worldwide, Saatchi & Saatchi says 'If you read only one leadership book in your life, make it this one.

Brilliant!”

quotes, and irrefutable wisdom.

Note the book is called 'Legacy' rather than any variation of 'Winning' or 'Champions'. This really highlights the key theme of the book. The All Blacks have always worked to create a longterm successful cultural legacy.

It is the identity of the of the team that matters For the uninitiated, the All Blacks are New Zealand's National Rugby team, the world's most successful sports team over the last 100 years with a win-rate of 75 per cent (86% in the modern professional era) a phenomenal achievement matched by no other elite team, in any sporting code.

Legacy is a unique, inspiring easy to read handbook for leaders in all fields that talk to the issue of success – sustained success, and how culture delivers competitive advantage.

While some books on leadership and culture can be dense reads you feel forced to slug through, 'Legacy' is compelling reading. We give a copy to every executive we coach as part of our Executive Performance Coaching program, every coaching counterpart from throughout APAC, India, The Middle East and Europe, most read it within a week and all have found it a great asset. The book delivers 15 powerful and practical lessons for leadership and business 'Legacy' combines anecdotes from those directly involved in the All Blacks' success, to quotes and stories from some of the most successful coaches and people involved in sport. The pages are packed with insights, candid

Central to All Black competitive advantage is the ability to manage their culture and central narrative by attaching the players' personal meanings to a higher purpose. It is the identity of the of the team that matters – not so much what the All Blacks do, but who they are, what they stand for, and why they exist.

The principle of 'Competitive Advantage' was being extensively researched / developed in the late 1980s early 90s when I completed my MBA. Harvard's Michael Porter was a pre-eminent thought leader of the time with his 'Value Chain' modelling. I have to admit James Kerr's observations are a much lighter more enjoyable treatment of the subject matter.

The book explores factual proven determinants of organisation success, how to achieve worldclass standards, day after day, week after week, year after year, how do you handle pressure and examine show individuals and organisations train / coach to win at the highest level.

Kerr proposes that being the best in the world is about more than just technique, that rugby like business and life, is a game coached and played primarily in the mind and asks what can this

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remarkable organisation teach us about leadership Central to success is the concept that 'Better people make better All Blacks (and organisations) ' and that successful leaders balance pride with humility, absolute pride in performance, total humility before the magnitude of the task.

The book discovers that the challenge is to always improve, to always get better, even when you are the best, especially when you are the best.

The book highlights how in 2004 the All Blacks set out to identify the 'core story' of the team and aligned everything around this central organising narrative. "The success was being really good at that" says the Coach at that time.

Following their arguably premature exit at the 2003 World Cup, the All Blacks worked with forensic psychiatrist Ceri Evans to understand how the brain works under pressure. They wanted to overcome their habit of choking (at World Cup Events). 'Red Head' is an unresourceful state in which you are off task, panicked and ineffective. 'Blue Head', on the other hand, is an optimal state in which you are on task and performing to your best ability.

The All Blacks use triggers to switch from Red to Blue. The current Captain stamps his feet, literally grounding himself, while the Vice Captain stares at the farthest point of the stadium, searching for the bigger picture.

Using these triggers, the players aim to achieve clarity and accuracy, so they can perform under pressure.

'Legacy 'cites American football

November 2014

HUMAN RESOURCE coach Bill Walsh, who also considered himself a teacher first and a leader second. Between 1979 and 1989, Walsh coached the San The challenge of every team Francisco is to build up a feeling of 49ers from oneness, of dependence on an underperfor one another ming bunch of also-rans into one of the great dynasties in gridiron history by employing a similar philosophy.

He believed that, "You get nowhere without character.

Character is essential to individuals and their cumulative character is the backbone of your winning team.""Create the highest possible operating standards, develop the character of your players, develop the culture of your team and, as the title of Walsh's book proclaims, The Score Takes Care of Itself.""Walsh knew," Stuart Lancaster, the current England rugby coach, told rugby writer Mark Reason, “that if you established a culture higher than that of your opposition, you would win. So rather than obsessing about the results, you focus on the team."

Remarkable success on the field begins with a very particular culture off the field

According to another famous American Football Coach Vince Lombardi, “only by knowing yourself can you become an effective leader" For him it all begins with selfknowledge, with the great 'I Am'; a fundamental understanding and appreciation of our own personal values. It was on this foundation that he built his teams and his success. From selfknowledge, Lombardi believed we develop character and integrity.

November 2014

And from these qualities comes leadership."

"The challenge of every team is to build up a feeling of oneness, of dependence on one another," said Vince Lombardi. "Because the question is usually not how well each person performs, but how well they work together.""

The book sites Lombardi put humility at the core of their teaching. The All Blacks put a similar emphasis on their fundamental and foundational values, going so far as to select character over talent. The players are taught never to get to big to do the small things that need to be done. "Exceptional results demand exceptional circumstances," says Al Black Coach Wayne Smith. These conditions help to shape the culture and therefore the ethos – the character of the team. Healing begins at the level of interpersonal communication, enabling an interrogative, highly facilitated learning environment in which no one has all the answers. Each individual is invited to contribute solutions to the challenges being posed. This is a key component of building sustainable competitive advantage through cultural cohesion. It leads to innovation, increased self-knowledge and greater character."

and it is this culture – the glue that holds it all together – and that has delivered extraordinary competitive advantage for more than a century.

The All Blacks most successful coach to date Graham Henry is quoted “I think all of those environments, whether it's a business environment or sporting environment, are about developing people. So, if you develop your people, your business is going to be more successful. It's just a matter of creating an environment where that becomes a happening every day” A final quote from the book “In business it can often be difficult to prove that brand - the vision, values, purpose and common language of an organisation deliver measurable results. But the All Blacks know - and the scoreboard shows - that the 'soft stuff – Culture - delivers the hard stuff.

Legendary American Basketball coach John Wooden says “winning takes talent - to repeat it takes character.'"

James Kerr is a London based marketing executive and member of one of New Zealand's most commercially successful families.

Our COO Darryl Judd is a relative one NZ's most famous All Blacks, Sir John Kirwan -mentioned in the book and one of the founders of modern All Black culture. None of which is surprising given NZ is a small country of 4 million (over a million of us live offshore) - we all know each other by first name…..

James Kerr's observations of his time embedded with the All Blacks uncovered that remarkable success on the field begins with a very particular culture off the field

Kim Winter is the Global CEO of Logistics Executive Group, an exprofessional rugby (USA) player and a qualified Executive Performance Coach.

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FEATURE

Does AEO Certification make sense?

India has a big porous Trade network, which can be penetrated at will of the sick mind of a terrorist. Indian trade is not insulated in manner other than the normal Government agencies are engaged with.AEO (Authorised Economic Operator) program initiated by WCO and adopted by its member countries envisages participation of the Private Jeevan Kumar Rao CEO Indelox Services Pvt. Ltd.

Sector in the initiative apart from the Customs to Customs co-operation in securing the cross border trade that can be a conduit for the corrupted mind. Jeevan Kumar Rao of Indelox shares his views on AEO Certification.

A

n authorized economic operator, or AEO, is defined as "a party involved in the international movement of goods in whatever function that has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards."Companies large and small stand to benefit in many ways with an AEO Certification. It enhances self-learning and corrective process of a business.

required cause. Another constraint is that many of the Supply chain functions are carried out of the public premise where the control and visibility is vested with partners, so unless that reliability is built not just within the country but across the chain beyond border also.

Documentation Control. Most of the supply chain functions are carried out with the absence of cargo with the evidence of documented information. Credibility and to sustain the information presented at each of the control points are relied upon only on the basis of document. Any chances of tampering or information getting into the wrong hands are to be strongly controlled.

Some of the Benefits are, Compliance and increase awareness of the Regulations of import and Customs provision. Certified entities are evaluated for their internal systems, expertise and knowledge of Law, procedures, controls for declarations, Record keeping and integrity.

Secure your Premise or Facility. Business premise are to be secured with attention and detail as it is not physical cargo alone which are under threat, equally exposed are information, Data, personnel, Premise, Network, IT, Transport Vehicle.

Place enough barriers, deterrents, Lighting, Alarms, Security manned properly including remote surveillance, if required.

Integrity and Competence level of the Personnel. AEO considers the certified organization as its partner in the private sector and as such the deliverables of the individual are to be of highest level as the adherence of the law are to be unquestionable. Background verification of employees is a must.

Bring Awareness on threat perceived and Regular training of personnel. Periodic sharing of awareness and preparedness to thwart any perceived threat is a good practice to increase the observation capability of people in the chain be it in production or Sales or Administration.

Partners and Suppliers are evaluated and verified in equal measure to bring compatibility of objectives. Business today does not exist in an island and works thru a maze of complex network. An organization seeks and deploys partner's expertise for required services to manage administration and meet goals.

For the purpose the deployed agency or organization also has to equally be of worth in terms of integrity and assure that people in their organization can also be trusted for the

November 2014

It connects to global supply chain in a seamless manner and also contributes to cost reduction in financial function thereby making competitiveness stay on top of agenda. In the long run it is a win- win for all as TRUST in each other grows with a common goal that of PROGRESS AS A NATION.

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