Full magazine september

GURU SPEAK PROCESS KNOWLEDGE OPINION HUMAN RESOURCE September 2014

Vol. 2- No. 6 Rs. 150

The Changing Face of Supply Chain-

Technology Industry Manage your Inventory page no. 22

Academic Advocacy Antecedents and Enablers of Supply Chain Agility page no. 42

Warehousing Dip in Warehouse Productivity page no. 45

EDITORIAL

There Are No Free Lunches I

GIRISH V S EXECUTIVE EDITOR

nteresting times are around the corner. The green shoots of industrial revival are clearly seen. The IIP numbers are looking promising. Business confidence is returning. Stock markets are preforming. Japan has promised to invest USD 35 Billion over the next five years. China has trumped that with announcing a USD 100 Billion investment in infrastructure, energy and smart cities. Finally the India story is developing in the right direction. At the same time, some political parties in India have started an agitation to abolish tolls on roads. As a nation we have become so used to freebies, we are unwilling to pay for anything. We want roads – to use the words of Lalu Prasad Yadav – like the cheeks of Hema Malini. And we get roads like the cheeks of Om Puri! A few days back, I visited JNPT. The roads (and yes they were toll roads) were abysmal – more like axel breakers. That set me wondering – here was the busiest port in India.

The problem is we cannot take goods in or bring out goods without the threat of broken axels. The frustrating part was, the same road was re-surfaced just 20 days back for the Prime Minister's visit.

Apparently, we build mobile roads – they go where ever the Prime Minister goes. The same goes for energy – we would rather steal electricity than pay for it. Our T&D loses are legendary.

Even if China and Japan bring in their Billions, even if we use their technology to build roads, who is going to pay for it? Can we dream of world class infrastructure without having to pay for it? Be it infrastructure, energy, education or sanitation, we need investments and we need to learn there are no free lunches.

In this issue we bring you insights from Dr. John Gattorna – an acclaimed supply chain guru. Your magazine in association with ISCM, is bringing Dr. Gattorna to Mumbai for a master class and a supply chain summit on the 20th and 21st of November. Book your seats in advance. And yes, to learn from world masters, there are no free lunches.

Happy Reading

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September 2014

CONTENTS SEPTEMBER 2014 September 2014

06 SCM NEWS >>

26 PROCESS >>

Analysis of latest Supply Chain and Logistics happenings from around the globe

Girish V S, Editor SCMPro peeps into the Supply Chain innovations at Toyota.

8 GURU SPEAKS >> ISCM and SCMPro introduce Dr. Gattorna's works to Indian supply chain professionals.

30 KNOWLEDGE >> In third part of the series, Stephanie Krishnan, Joe Lombardo and Raymon Krishnan discusses how structured approach adds value to organisational growth and development.

22 INDUSTRY >> Vijay Wadhwani, Senior General Manager (SCM), Relaxo Footwears Limited shares his insights into inventory management.

34 OPINION >> Kanika Bhutani, on Supply Chain in Dot Com Era.

10 LEAD STORY Along the years, there have been some enabling technologies and some disruptive technologies. Both have helped build an agile, resilient and adaptive supply chain.

For this issue of SCMPro we take a look at some of the technology changes in supply chains.

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36 SME CORNER >> Mayur Agarwal discusses the role of technology in shaping SME Supply Chain efficiency.

40 SCMPro CLASSROOM >> Piyush Shah, Research Editor – SCMPro takes on Inventory Classification in this edition of SCMPro Classroom.

42 ACADEMIC ADVOCACY >> This issue of Academic Advocacy investigates the fundamental building blocks of supply chain agility, which is conceptualized as supply and demand side competence.

45 WAREHOUSING >> Ananth MK brings to you the basics in improving Warehouse Productivity

48 HUMAN RESOURCE >> Darryl Judd takes a look at employee commitment, a must of any business success.

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September 2014

NEWS

Supply Chains Becoming More At-Risk as “Internet of Things” Grows Gartner is predicting a 30-fold increase in Internet-connected physical devices - from 900 million to 26 Billion devices by 2020, will generate revenues exceeding USD 300 million and that this will significantly alter how the supply chain operates, and create more “cyber-risk exposure”. With so many devices connected to the internet, the Internet of Things has the potential to revolutionize supply chains – there will be a tsunami of data flowing across the supply chain. Supply Chain owners and managers need to factor in the IoT in their supply chain planning. And as devices start talking to each other, customers will expect faster and more accurate information flows. According to the Gartner report, “Supply chain leaders must design their processes to operate in this digital business world. This includes fulfilling the new expectations of customers and the volatile demands that digital marketing will create. A future supply chain will meet those expectations by converging people, business and things in a digital value network, and incorporating fast-emerging capabilities such as IoT and smart machines into this design strategy.” Time to look at the IoT a bit more closely – will it be a game changer or an over hyped technology fad!

Customized Education Counts Supply chain education in India is at best sketchy. Unlike the west, the number of colleges offering specializations in supply chain management are very few.

Some of these courses offer a curriculum that is rehash of subjects thrown in with little regard to flow and continuity. Out in the US, things are changing fast. The US had a vibrant supply chain education in place. Most of the courses were open enrollment, where people from multiple firms would enroll for these courses. Of late,there has been a change with more firm preferring customized courses, as per their unique requirement. Firms prefer the customized option for two reasons - paradoxically, the first reason is cost - firms end up spending much more if they have to send, say 30 executives, to a general training program. The customized program offers them the chance to co-design the curriculum and at the same time reduce costs. Is this the way Indian firms should go?

JBS Academy trains 110 EXIM and Logistics personnel in Vadodara JBS Academy which specialises in logistics training with a focus on Shipping, Freight Forwarding, Customs & Air Cargo conducted a 1 Day Comprehensive Programme on EXIM Processes, Documentation, Customs Clearance at ICD and Ports at Baroda on Saturday 9th August 2014.

The same was attended by 110 persons from Exporters/ Importers/Customs Brokers/ Freight Forwarders / Shipping Companies / Transporters and Custodians.

It was a full day interactive programme conducted by Mr. Samir J Shah, Chief Mentor and Director of the Academy.

JBS Academy has its Certificate and Diploma Programmes certified by NCVT – National Council of Vocational Training and GCVT – Gujarat Council of Vocational Training.

It has till date trained over 2500 persons in EXIM Logistics.

A similar programme is planned at Ahmedabad for 4th November 2014.

September 2014

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Revenue for SCM Software at $10 Billion This Year Revenue from supply chain management (SCM) software is on track to reach $10.0 billion in 2014, a 12.2 percent increase from 2013, according to Gartner, Inc. This would be the highest annual growth rate since 2011.

Gartner conducted a survey in the last quarter of 2013 - where they surveyed 447 supply chain professionals across North America. According to the report, "When asked which obstacles hindered their progress toward achieving organizational goals, respondents identified inaccurate forecasts of demand for products and variability of demand as the leading ones. Both can be overcome with the help of supply chain initiatives and technologies."

Interestingly, 43 percent of the respondents believed that going in for a single technology platform was better to avoid the complexities of integrating heterogeneous platforms and data streams. The report also reveals that most of the revenue will come from add on purchases rather than new implementations. This is a far cry from the Indian scenario, where supply chain automation is at a nascent stage. As margins come under pressure, Indian SCM managersmay as well look for pay per use model rather than go in for an owned implementation.

GURU SPEAK

PROCESS

KNOWLEDGE

OPINION

HUMAN RESOURCE

Challenges of

Global Fast Fashion Supply Chains Dr John Gattorna is an acknowledged 'thought leader' on the global supply chain scene. For over two decades he has researched, consulted, and worked in various capacities in and around enterprise supply chains.This article is a part of the chapters about global fashion retail. In this article, he examines the challenges of supply chain management for global fashion brands.

ISCM and SCMPro are bringing Dr. Gattorna to India for a master class. This article introduces Dr. Gattorna's works to Indian supply chain professionals. The article was first published in Supply Chain Movement.

Network design and inventory location There is no doubt that the fast-changing and glamorous image the fashion industry projects to consumers and the rest of society is very appealing. Nonetheless, it is this very aspect of its nature which poses significant challenges for supply chain professionals. One such challenge is the marking-down of slow-moving items at the end of the season, an example which highlights the rationale behind a number of important decisions made by companies in relation to network design and inventory location.

Dr. John Gattorna UTS University of Technology, Sydney

September 2014

Interestingly one particular item might shift faster or slower, depending on the store and its location. Generally, slowmoving stock ends up being sold at a significant discount during clearance periods, or shifted through an external, online, or company outlet store. However, if located in the right store at the right time it could have been sold at full-price.

Therefore, companies are increasingly opting for simpler supply chain networks,

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to easily and quickly replenish and rotate stock to stores, in accordance with local market trends.

The ideal situation would be to operate with only one global inventory location.

However, this is not a practical option for most businesses. Currently, only one company, Inditex (Zara), has been able to achieve efficient global deliveries from central distribution centers based in Spain, to stores within 40 hours range. This is one of the reasons why, Inditex (Zara) frequently arises in conversations.

Generally recognized as a world leader in fashion retail, the company is renowned for listening very closely to consumers, making rapid and instinctive product design decisions, and being able to create and place products in stores faster than any competitor. Some outsiders are convinced that their business model places a bigger emphasis on the cost of stock and markdowns, rather than the process of producing and shipping products, a model with which many companies feel

GURU SPEAK systematically incompatible.

In fact, the volume of product shipped by many companies does not even merit attempting to deliver globally with such speed and efficiency. Paradoxically, size is sometimes an enabler of speed because the very big volumes, 800 million garments a year in the case of Inditex, facilitates cheaper airfreight costs, and allows for production to shift between suppliers, an option not generally open to most players in the industry.

Other companies have opted to situate inventories regionally to guarantee rapid deliveries and ensure order lead times to stores do not exceed three days.

Companies that have chosen this particular strategy, operate with networks which normally consist of up to three or four globallypositioned inventory locations; typically in Asia, Europe and the US respectively. In some cases, companies use network modeling technology to assess different alternative inventory location scenarios in order to identify the optimal solution.

Companies that have chosen this particular strategy, operate with networks which normally consist of up to three or four globally-positioned inventory locations However, it is also possible to tackle the mark-down issue from another angle. Some companies optimize revenue streams during sales periods using price elasticity

optimization techniques. In this way they can implement discount mechanisms that maximize revenues in accordance to the reaction by customers to different price points based on historical performance.

Stores replenishment Sourcing and manufacturing lead times within the fashion industry can usually be anything from one to three months. As a consequence, optimizing the process of store replenishment requires accurate forecasts. There are a number of proven factors at different stages of the forecasting process which help improve accuracy. These include, the reaction of potential customers to new collections, specific events held to discuss and determine forecasts, and analysis of first orders from those specific channels which are first in the order decision cycle, for example, wholesale.

In contrast to other industries, this forecasting process is more opinion than statistically based, mainly because the majority of products are new and there is no historical data to rely on. That said, there is definitive evidence that this process is becoming more multi-functional in order for companies to collect the best intelligence from all possible sources. In the opinion of Manel JimÊnez, the Supply Chain Director of Desigual,� the process of generating accurate forecasts is critical. We are continuously refining the way we incorporate the intelligence we gather during delivering of a collection. The more multifunctional, the better the results�.

Finally, there is no doubt that social media and direct interactions with customers are starting to become a

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source of intelligence, not only for product design, but also for generating better sales forecasts.

When companies operate in different channels (wholesale, franchise, retail and online) interviewees confirmed that the behavior of those channels alters according to market conditions. As a consequence, they acknowledged that the theory of buying behavioral segmentation, as developed by supply chain thought leader John Gattorna would definitely facilitate a more effective forecasting process.

Most companies' supply chains replenish their stores based on stock levels and company forecasts.

However, the Inditex model differs slightly in two ways. Firstly, automatic order replenishment proposals can be amended by store managers who actually have the final word on order quantities. Secondly, lack of product availability in stores might be seen as the consequence of the demands of fashion, with new products continuously brought in to satisfy consumers' need for new styles and trends.

In any case, sales in stores tend to build up over the weekend period.

The replenishment processes therefore have to be flexible enough to cope with corresponding weekly peaks and troughs, a fact which can pose difficulties, especially when operating Distribution Centers.

Stores have to have sound product replenishment procedures to avoid out-of-stock in stores, when the product is available in the back room. For this purpose stock record accuracy is of vital importance, and increasingly companies are at last considering RFID as the ultimate solution to this problem.

September 2014

LEAD STORY

The Changing Face of Supply Chain-

Technology

September 2014

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LEAD STORY

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upply chains have moved from the accidental models – w h e re t h e s u p p l y c h a i n s developed in response to business pressures – to adaptive supply chains – where supply chains have the ability to spot an incipient disruption and adapt itself to reduce the impact of the disruption. At the heart of this transformation is technology.

Along the years, there have been some enabling technologies and some disruptive technologies.

Both have helped build an agile, resilient and adaptive supply chain. For this issue of SCMPro we take a look at some of the technology changes in supply chains.

We start with a look at “Internet of Things and Supply Chains”.

From isolated devices, to connected devices, technology has created opportunities for us to change the way we look at our supply chains. The Internet of Things (IoT) is the new buzz word among technology geeks.

Techopedia defines IoT as “The Internet of Things (IoT) is a computing concept that describes a future where everyday physical objects will be connected to the Internet and be able to identify themselves to other devices.” Girish V S, Editor, SCMPro brings you an update on IoT and its impact on supply chains.

We next examine the role of SMAC in the supply chain in "SMAC the Supply Chain for Efficiency." The technology world has a new buzz word SMAC- Social networking, Mobile, Analytics and Cloud

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computing. Together these set of technological innovations have been shaking the IT industry for past several years. And this combination of technologies is transforming the business model.

They are known by many names IDC calls this combination "Third Platform", Gartner calls it "Nexus of Forces" and Cognizant calls it "SMAC "- Social, Mobile, Analytics and Cloud.

The next article explores the role of technology in the aftermarket supply chain, in "Technology in the Aftermarket Supply Chain".

The aftermarket supply chain refers to an activity or period in time in the product life cycle after the product leaves the shelf, reaches the consumer and then has to be either serviced, provided with spares or is delivered for reuse in one form or another. Mr. Vasu Ramanujam, Senior Director India Operations, Entercoms take a look at the role of technology in the aftermarket supply chain.

And finally we bring you some of the disruptive technologies that are likely to impact the supply chain in “Disruptive Technologies in Supply Chain."

Technology is redefining the supply chain logistics.

Centralization of manufacturing, globalization of sourcing and borderless customers has led to the evolution of a multi layered, complex supply chain structure.

These structures pre-suppose a high degree of technology innovation to even maintain a business as usual policy.

Happy reading!

September 2014

LEAD STORY

Internet of

Things From isolated devices, to connected devices, technology has created opportunities for us to change the way we look at our supply chains. The Internet of Things (IoT) is the new buzz word among technology geeks. Techopedia defines IoT as “The Internet of Things (IoT) is a computing concept that describes a future where everyday physical objects will be connected to the Internet and be able to identify themselves to other devices.” Girish V S, Editor, SCMPro brings you an update on IoT and its impact on supply chains.

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The Internet of Things has been around as a concept for about 15 years now, since the term was coined in 1999 by Kevin Ashton

September 2014

n the physical world, we need specific intervention to extract data from a physical device. The Internet of Things can be broadly defined as the coming together of the physical and digital world – a world where individual devices will be able to seamlessly send data to a central location – and that too without any deliberate intervention.

This data can be used to trigger a response. For example, a reefer will be able to monitor the temperature of its contents and in case of a spike, send an alert to a pre-defined location, which will in turn send a person to check out

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the malfunction. The Internet of Things has been around as a concept for about 15 years now, since the term was coined in 1999 by Kevin Ashton, a British-born technologist who was a key player on the MIT team that created the global standard for RFID technologies.

According to a study by Gartner, “The Internet of Things (IoT) is forecast to reach 26 billion installed units by 2020, up from 0.9 billion just five years ago, and will impact the information available to supply chain leaders and how the supply chain operates,

LEAD STORY depending on industry.”A 2011 Cisco report predicts there will be 50 Billion connected devices globally by 2020, or about 6.5 devices for each person, up from only approximately 2.5 today.

Whichever way we look at it, the future belongs to a world of networked devices exchanging data, analyzing the data and providing a suitable response. Welcome to the Internet of Things.

A few IoT devices – like the tracking devices we use in our supply chains have been around for some time. Other applications like fabrics with sensors that can monitor a manufacturing process are being developed. The IoT is set to change the way supply chains work. We look at some of the promising changes.

Proactive Replenishment Stock outs are a perennial problem for any process – retail or manufacturing.

Firms have spent considerable amount of time and money to get the sourcing of products to an exact science. But still we have not been able to prevent stock outs. The IoT is set to change this. The IoT has the capability to automatically recognize the need to order a product on a machine-tomachine basis, reducing human interaction. Take the example of a vending machine. Today, service personnel from a distributor will make a milk run, checking and restocking the

vending machines to prevent stock outs. With the IoT, the vending machine will be able to sense when a product is out of stock or low on a soft drink and immediately trigger a message to the distributor to restock them. The result is less human inter vention, quicker replenishment, better sales forecasting and ultimately increased revenues.

The same technology when combined with RFID can be used by retail outlets to monitor sales, and as the stocks deplete, the stores can send a reorder message to the distribution center, and to the manufacturer, and also include what has been sold, when sales occurred, how often it was sold, SKU p r e f e r e n c e s , troubleshooting information, and service data. We can soon see automated inventor y control and real time visibility to inventory.

Predictive Maintenance Breakdowns are a constant headache for any manufacturing plant.

Engineering theory tells us that we need to undertake “predictive maintenance” to reduce down time. Yet, we have not been able to reduce machine down time to levels we would like.

The IoT has the capability to give us real time

predictive maintenance capability. From large diagnostics on the complex plant and machinery to the car, we can embed sensors and connect the devices to monitor and react to issues.

This self-diagnosis capability can detect a potential issue before there's a failure, order a replacement part and even schedule maintenance to avoid costly downtime. This can improve the efficiency of the supply chain. The biggest beneficiary would be the aftermarket supply chain.

When you couple the IoT to 3D printing, we have the capability to get the required part printed in the factory with the least elapse time.

Parts manufacturers can track the condition of the machines, evaluate the requirement of parts, provide a command to 3D print it or manufacture the parts. This reduces the lead time for delivery of critical spares and at the same time reduces down time. Parts inventory can better forecast and consistent safety stock levels identified. IoT, in this example, is a true B2B automation, improving the communication between businesses can be developed on every link of the chain.

The refrigerator would be able to sense if eggs or milk is over, and order it with the on-line retailer, who in turn will supply the same; and debit your account too in the process

This technology has been around for a considerable time. From the late nineties, Automated Teller Machines have had the capability to self-diagnose and send health messages to a central monitoring team that in turn

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September 2014

LEAD STORY

The top down supply chain, where the producer decides where to send the products will give way to a demand driven pull system, where the customer demand will flow back in real time triggering supply chain response

would alert the nearest service person to attend to the ATM. Similarly, t h e a i r c r a f t manufacturers have been including similar devices that send a constant stream of data to their central team, which will then process it for any irregularity and alert teams for maintenance.

The same technology will soon be embedded into home appliances– the refrigerator would be able to sense if eggs or milk is over, and order it with the on-line retailer, who in turn will supply the same. And debit your account too in the process.

Complete Visibility Corporates and supply chain entities are fighting a battle to ensure better visibility into their supply chains.

Supply chain visibility is one of the top five priorities for a supply chain head. In some industries like pharmaceuticals, regulations mandate the implementation of track and trace capabilities. The Drug Quality and Security Act of the USA, mandates the US drug regulator to develop a means of tracing a drug throughout the supply chain to try and

September 2014

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minimize the risk of contaminated or fake products making its way to the drug stores.

The IoT gives us the capability to track and monitor a shipment in re a l t i m e u s i n g a combination of sensors (RFID), connected d e v i c e s a n d communication channels (3G/4G, GPS, Internet). It provides the ability to have real time transit status including location, temperature and diagnostics. A novel application of the IoT will be in perishables transportation. The IoT will enable the transporter to monitor the planned route for delays, map alternate routes, monitor the ambient temperatures throughout the route, plan for cooling and optimize freshness in the goods transported.

This will enable us to reduce the wastage of agri commodities in the supply chain.

Why the delay?

Three technology advances have converged to make the IoT story come to life –advances in sensor t e c h n o l o g y, communication capability and cloud computing. But the biggest obstacle for its

wide spread adoption is the slow pace investments into the required technologies by supply chain players.

The development of a standard protocol is critical to the easy exchange of data between devices – which is the heart of the IoT. The IoT will lead to the evolution of a demand chain. The top down supply chain, where the producer decides where to send the products will give way to a demand driven pull system, where the customer demand will flow back in real time triggering supply chain response.

Michael Burkett, managing vice president at Gartner, says "Supply chain leaders must design their processes to operate in this digital business world. This includes fulfilling the new expectations of customers and the volatile demands that digital marketing will create. A future supply chain will meet those expectations by converging people, business and things in a digital value network, and incorporating fastemerging capabilities such as IoT and smart machines into this design strategy."

LEAD STORY

The Supply Chain for efficiency

SMAC The technology world has a new buzz word - SMAC- Social networking, Mobile, Analytics and Cloud computing. Together these set of technological innovations have been shaking the IT industry for past several years. And this combination of technologies is transforming the business model. They are known by many names - IDC calls this combination "Third Platform", Gartner calls it "Nexus of Forces" and Cognizant calls it "SMAC "- Social, Mobile, Analytics and Cloud. SCMPro takes a look at the role of SMAC in shaping the Supply Chain.

MAC is the convergence of four technology i n n ov a t i o n s - So c i a l networking, Mobile, Analytics and Cloud computing. We have been using these individual technology innovations for quite some time. Before we look at the way in which SMAC can transform the supply chain, a look at the individual technologies is in order. Social's dictionar y meanings are community, group, shared, gettogether, collective existence, networking etc. So being social means, interacting with others and eventually with whole universe. There are multiple

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mediums for this interactions and the medium in question here is Internet. Web based networking services started connecting people, and today we have Facebook, LinkedIn, and a host of other services. Mobile -There are 7.1 billion people living in this world and 6.6 billion mobile subscribers.

By 2016, there will be more than 10 billion mobile devices which would roughly be 1.5 times of world's population at that time. And as mobile penetration increases, trade and commerce will be redefined.

The Social and mobile provide a platform for customer choices to flow into the supply chain. And both these are today outside the

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traditional supply chain.

The other two innovations – Analytics and cloud are more a B2B application. Analytics means scientific and systematic analysis of data. With the Internet of Things, Social Media and the mobile device, The importance of Social data has grown Media in the supply chain e x p o n e n t i a l l y. stems from its importance Analytics makes in gauging customer extensive use of demand mathematics and statistics to convert raw data into a meaningful data which can augment decision making process. Analytics helps in anticipating future outcomes - a typical example could be to predict a

September 2014

LEAD STORY machine failure and proactively notify its owner to avoid downtime. Simple meaning of Cloud in context of SMAC is using software applications as a service without buying them. Service is offered remotely through internet and a usage charge is paid to seller.

The point here is that user need not buy and install hardware, software, The SMAC n e t w o r k and technologies are infrastructure and available and start using the mature. It is up to software without any the firms to integrate them into capital expenditure, and pay as per use. their supply chain models Cloud services providers use economies of scale and try to make use of every bit of computing space to provide cost effective services to users. It can offer benefits like usage of latest products/technologies, reduced internal IT staff, better opportunities for innovation while day-to-day operations are being shifted to cloud service provider.

SMAC in the Supply Chain The SMAC solution set, if applied holistically, can help organizations unbundle tightly-coupled, industrial-age value chains and transform business, if not entire markets, creating boundaryless ways of working. Older firms probably have their business structures wrong in many ways.

Customers, employees and investors know it. Many of the key processes, and operational models that support them, were likely architected for yesterday's world and are out of place in today's digital world. To use an example – the value of the smart phone is in the apps, the connectivity and the

September 2014

cloud technology that allows it to function usefully. Else, it will remain an expensive telephone.

Social Media looks like a strange combination in a supply chain.

The importance of Social Media in the supply chain stems from its importance in gauging customer demand. One of the most vexing problems of the supply chain is demand forecasting. Firms spend a fortune trying to fine tune their forecast. Demands of 99.99 percent forecast accuracy is not unknown. However, the biggest help in understanding customer demand is the social media. Long before the actual purchase happens, the buyer would have expressed his choice and alternatives in the social media. If firms can use this knowledge, it can boost sales and customer satisfaction. For example, a gentleman walked into a store in the US looking for Heinz ketchup.

But it was out of stock. The man tweeted his disappointment. The Tweet was picked up by Heinz, the gentleman traced a bottle of the ketchup was delivered – using the traditional supply chain.

S M AC c a n t r a n s f o r m t h e interactions with key stakeholders - customers, machines,partners and employees. SMAC can help a retail store by signaling to store

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management that the shopper has entered the store, provide instant help and directions, help shoppers navigate the store most efficiently for the items they want to purchase, and help the customer pay without having to go through a long checkout line through in-aisle checkout.

General Electric has created “GEShare,” through which say a jet engine or a power turbine, sets up its own social network. The machine continually posts its realtime performance information to the appropriate engineers — either at GE or at a GE customer site — creating a collaborative network of machines and humans, all working together virtually to ensure optimal performance, head off possible failure and provide optimal maintenance of these machines.

SMAC is a set of four converging technologies that will change the way customers buy, collaborate and demand products and services.

Dismissing them as technology fad will lead to a situation where the firm may be left behind in the

value chain transformation. The technologies are available and mature. It is up to the firms to integrate them into their supply chain models.

LEAD STORY

Technology in Aftermarket Supply Chain

The aftermarket supply chain refers to an activity or period in time in the product life cycle after the product leaves the shelf, reaches the consumer and then has to be either serviced, provided with spares or is delivered for reuse in one form or another. Mr. Vasu Ramanujam, Senior Director India Operations, Entercoms takes a look at the role of technology in the aftermarket supply chain. he aftermarket supply chain is very different from the forward supply chain. Normally, supply chains deliver a product at the right place, at the right time and at the best possible price. The data that drives the supply chain is the customer demand and tools and technologies have been developed to gauge the specific customer need. And today, the supply chains have become a part of the Boardroom strategies.

Aftermarket, on the other hand is the least preferred role in any organization. Right from staffing to providing the required technology support to this function is lagging. To compound the issues, aftermarket demand starts with a lag- the initial few years of the product life would be smooth and there would not be any

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requirement of spares or service. By the time the problems start, most probably the model has been discontinued, the design documents are not easily traceable, and the organization may have lost interest in developing spares. In such a scenario, introduction of technology is the last thing in the firms mind. A major issue with aftermarket, and this stems from its inability to attract and retain talent, the ability to use the technology optimally is in doubt.

Quite often, the aftermarket supply chain head is not capable of convincing the Board of the necessity to invest in aftermarket supply chain solutions, nor are they able to adopt to the technology stack provided. Very often, the technology is sidelined and the users go back to the tried and

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tested, at a huge cost and efficiency loss.

Enterprise Resource Planning (ERP) systems, planning Aftermarket tools and dashboards are demand starts no longer sufficient tools with a lag- the to drive businesses. initial few years of These tools tend to be the product life inflexible, do not adapt would be smooth well to change, and do and there would not provide predictive not be any control over business requirement of outcomes. They do not spares or service help optimize business to meet management goals. Businesses need a set of specialized technology solutions aimed at the aftermarket supply chains.

There are three broad areas where technology can help in the aftermarket supply chain. The first

September 2014

LEAD STORY is in warranty analytics. Normally, firms extend warranty for their products. Sales consider the w arra n t y as a de al sweetener.

The firm Firms need to usually does not analyze invest in the profitability of the solutions warranty service. It is a specific to the necessary condition for aftermarket. doing business. If the firm And in most cases, the pay could get a grip on the back is within a part that is failing, or the year geographical spread of the failure, probably the firm could rework the part and reduce both the downtime and replacement parts. For example, the wiper assembly in a luxury carmakers model used to constantly fail in India. The same model worked flawlessly in other countries. An analysis of the cause of failure indicated that the wiper assembly had a hole in the assembly.

India is a dusty country, and the dust would enter the assembly and choke the motor. A simple plugging of the hole solved the problem. The power of warranty analysis- Warranty analysis is being to make sense of which model at which geographical location is failing, for what reason and how frequently is it failing. This necessarily means having to extract relevant data from multiple systems – sometimes up to 20 odd disparate systems, cleaning the data and then using analytical tools on the cleaned data to understand what is going wrong and why. Investment in warranty analysis solution has the potential to pay for itself within a year.

A second area where technology solution can make a difference is service. Supply chains are inherently overwhelmed with data, much of which can be disruptive to critical decision making. Data mining and

September 2014

operating analytics capabilities span and filter across vast channels of data to identify trends that indicate potential problems so they can be addressed before issues arise.

Creating a predictive environment through accurate and relevant statistical analyses drives proactive decision-making, favorably impacting financial performance and customer satisfaction.

Technology can help in a whole host of services like Lifecycle planning, End-of-service-life management, predictive parts forecasting, Spare parts stocking strategy, Inventory risk management, Returns and repair planning, Excess and obsolescence management.

The third area where technology can play a crucial role is in the spare parts inventory. Quite often, by the time the requirement of spares comes up, the model would have been discarded. They may not have data on the model. The aftermarket supply chain has to perform under these challenges. The areas where technology can play a vital role are the areas of obsolescence and excess inventory. There is a life cycle for any product. It is a curve. If the firm cannot pick up the downward trend well in time, it leads to excess inventory and obsolescence. The firm is still producing the product based on past performance, while the product has started to decline in the market place. This leads to a inventory pile up. Technology can help predict the downward trend before it happens based on the behavior of the inventory. The technology can help inform the firm to reduce production. While the competition is focused on getting rid of excess inventory, technology can help prevent the buildup of excess inventory. Another area

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where technology can help is in providing visibility across geographies. A leading hardware manufacturer in the US had USD 660 million worth of aftermarket inventory across the world. This firm had grown through acquisitions – they had a number of systems where data was residing.

Technology helped the firm knockoff USD 275 million worth of inventory, without affecting service levels.

Some supply chains have products that can be repaired and used again.

For example centrifugal separators can be repaired and put back. In the repair supply chain some very interesting things happen.

Something is pulled out of operations and sent for repair, the system loses visibility of that. This will get repaired and will come back.

Without looking at this people order inventory. Technology can trace and track such inventory, identify the current status and inform the sourcing team that certain parts are likely to enter the inventor y, thereby reducing reorders. The firm can avoid buying excess inventory. This is called new buy avoidance.

However, technology implementation in the aftermarket supply chain has its own set of problems. Most of the implementations are of the forward supply chains, masked as aftermarket supply chains. Firms should realize that aftermarket supply chain dynamics is vastly different from forward supply chains and same solutions will not work. Firms need to invest in solutions specific to the aftermarket.

And in most cases, the pay back is within a year!

LEAD STORY

Disruptive Technologies in Supply Chain Technology is redefining the supply chain logistics. Centralization of manufacturing, globalization of sourcing and borderless customers has led to the evolution of a multi layered, complex supply chain structure. These structures pre-suppose a high degree of technology innovation to even maintain a business as usual policy. SCMPro takes a look at some of the disruptive technologies that threaten the supply chains as we know it.

F

or a very long time, supply chains continued to remain agnostic to technology. Quite often, managements would believe that a cost center like supply chain does not require investments in technology – after all why increase the cost! We have come a long way from there. A potent mix of statutory obligations and customer pressure has driven supply chains to embrace technology. We hear of Warehouse Management system, Transportation Management System and Enterprise Supply Chain systems in the supply chain domain. However, there are quite a few technologies out there that show a lot of promise. Elsewhere in this magazine we have discussed the Internet of Things and SMAC. However, there are quite a number of technologies that have the power to disrupt the existing material and information flow. SCMPro takes a look at some of the areas where these disruptive technologies are finding space.

The Aftermarket Supply Chain The Aftermarket supply chain is very different from the forward supply chain.

There are technologies and models that will help the forward supply chain. But once sold, these products need spare parts and refurbishing from time to time. The aftermarket supply chain kicks in with a lag and goes on long after the manufacture of the product has ceased.

And unlike the forward supply chain, the aftermarket supply chain cannot be predicted, both in terms of the demand and the type. However, a new technology is set to disrupt the aftermarket supply chain – the 3D Printer.

3D Printing or Additive manufacturing is a process of making a threedimensional object of any shape from a digital model. 3D printing is achieved using an additive process, where successive layers of material are laid down in different shapes. 3D printing is also considered distinct from traditional

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machining techniques, which mostly rely on the removal of material by methods such as cutting or drilling. It is a disruptive technology that potentially changes many aspects of company's supply chains. It also offers both opportunities and threats to the 3PL and Logistics industries.

3D Printing has the capability to profoundly affect how the aftermarket supply chain functions. According to the most recent Wohlers report on additive manufacturing, the 3-D printing industry increased 28.6% in 2012, expanding into a thriving $2.204 billion market. In 2013, that market has continued to expand at an accelerated pace, well on its way to meeting Wohlers' target estimate of $5.2 billion by 2020.

GE Aviation, for example, recently announced that in less than two years it will begin 3-D printing fuel nozzles to be used in its jet engines. Along with that, the machines and tools assembling that

September 2014

LEAD STORY engine could include as many as 200 jigs and fixtures that are themselves products of 3-D printing.

Disruption in the Warehouse – Robotics Warehouses are slowly getting the technology edge. We have automated racking systems, warehouse management systems and a whole lot of tried and tested technology in the warehouse. Even the forklifts and stackers are energy efficient and bristling with technology. And into this scene, Amazon has introduced robotics.

Robotics is changing the way warehouses function. From the traditional WMS – which keeps track of the SKU location and directs the pick, robotics has advanced to a stage where the entire process is driven by robots, reducing the role of the human pick and store personnel. In a typical warehouse, about 60 to 70 percent of the labor is engaged in picking the product. In its distribution center in Arizona, robots bring the rack on which the product is stored to a central location where a human picks the correct product (aided by laser guides) and send it to the packing area on another robot. The racks move. The Human stays put. The robot takes the rack back for storage. And when the robot senses that it is running out of battery power, it goes and plugs itself into a charging bay! One benefit of the increasing use of robotics is that it could save energy spent in lighting up the warehouse. And to an extent (where temperature controlled storage is not necessary) in reduced cooling for the warehouse.

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Chaotic Storage– RFID and Bar Codes.

A warehouse is a place where goods are stored in an ordered and systematic manner. Each product have a definite place to be stored.

The more frequently picked goods are stored in an easily accessible portion. And improper storage can cause wrong product being picked for dispatch – leading to monetary loss and customer ire.

Amazon for instance has quite a few innovations when it comes to warehousing – for one, it has adopted the chaotic storage method – where there is no designated place for storage of goods. Goods are scanned into the nearest storage location in no particular order. When the goods are stored, two locations are captured- the product id and the location id. These data are stored in a sophisticated WMS. As and when an order is received, the WMS identifies the location of the product and directs the pick routine. This frees the warehouse personnel from having to be rigid about the location of storage. As long as the product is in the warehouse, the WMS will be able to locate it.

XBRL Yet another disruptive technology that is emerging is the XBRL (Extensible Business Reporting Language)- a standardized way of exchanging information among the multiple stakeholders in the supply chain. In the current process of shipping goods from one location to another, each entity in the supply chain passes the goods from one link of the supply chain

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to another -- from truck to railroad and onto a ship or aircraft and back; each piece of cargo has to be separately loaded, packed, arranged and unloaded. Similarly, business information that passes from one link in the chain to the next, must be interpreted, cleansed, reformatted, scanned, keyed in and re-keyed in, verified and cross checked at every node of the supply chain. This information flow that mimics the flow of goods is time-consuming, costly and exposes the information to breakage and pilferage in the form of distortions, errors and, sometimes, even fraud.

XBRL offers standardized way to package business information at its origin and transported faster, cheaper and with greater security, through all the links in the supply chain. XBRL allows firms to integrate a fragmented supply chain around a single, common standard, to enable seamless, efficient delivery of goods across roads, rails, air and water. XBRL will allow the 3PL player to slash cost of extracting data and converting it into meaningful information. And in the age of technology, information is power.

XBRL will encourage new kinds of reporting, allowing the 3PL to leverage the power of information embedded in their operations. And XBRL will be the base for the Internet of Things.

Clearly, technology can disrupt both the physical movement of goods and the flow of information in supply chains. It can disrupt the older methods of storage and retrieval. Will these bring in a higher degree of effectiveness and cost efficiencies? They do have the potential. But will we invest – and that is the million dollar question.

INDUSTRY

Vijay Wadhwani Senior General Manager (SCM) Relaxo Footwears Limited

Manage Your Inventory in a Better Way I

ndian companies appear to be getting better at managing inventories.

During last five years of economic slowdown, many companies saw increases in their inventories, but they managed to reduce the share of inventories to sales, thus effectively reducing the costs of carrying them. This factor emerges from a study of trends in the inventories-to-sales ratio of 70 major manufacturing companies having annual sales above Rs.1000 crore between 200708 and 2012-13. The ratio for those 70 companies decreased from 21 percent in 2007-08 to 12 percent in 2012-13, reflecting better management of inventories by the big corporate sector.

Inventory constitutes one of the most important elements of any system dealing with the supply, manufacturing and distribution of goods and services. It is a major component of working capital. To a large extent, the success or failure of a business depends upon its inventory management performance.

Proper management and control of inventory not only solves the problem of liquidity but also increases profitability. Inventory

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establishes a link between production and sales. Every business undertaking needs inadequate inventory quantity for efficient processing and in-transit handling. Since, inventory itself is an idle asset and involves holding cost; it is always desirable that investment in this asset should be kept at the minimum possible level. Inventory should be available in proper quantity at all times, neither more nor less then what is required.

Inadequate inventory adversely affect smooth running of business, whereas excess of it involves extra cost, thus reducing profit.

The primary objective of inventory management is to avoid too much and too little of it so that uninterrupted production and sales with minimum holding costs and better customer service may be possible. Neither too high nor too low level of inventory is beneficial for the health of the company. At the same time, there is no cut-and-dried formula to estimate or predict demand as there is no thumb-rule to forecast demand, especially in the highly dynamic

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marketplace.

Furthermore, globally, companies are continuously under the immense pressure to cut down their total logistics cost, especially inventory costs.

That is why, in the last two decade, new tools and techniques like JIT, MRP, DRP, TOC, and Replenishment System etc. have been invented. This is further complemented by rapid innovations in the field of information technology, enabling logistics and supply chain business solutions. Their extensive use empowered the enterprise to reduce inventory level without stock out situation due to real-time communication of information regarding the point of requirements.

Traditionally, for proper management of inventory level two issues need proper attention and analysis, namely a) Order Quantity: How much to order of each material with either outside suppliers or production department within the organization. It is also called Lot Sizes or Economic Order Quantity (EOQ); b) Order Points: When to place the orders.

It is also called Reorder Point (RP).

INDUSTRY having large number of SKUs. Many companies such as FMCGFoods and others, Paints, Threads and Footwear etc. can take advantage of this matrix.

ABC Analysis The concept ABC (Always Better Control) analysis is based on “Think on the Best and then on the Rest.” Not all customers and not all SKUs are equally important. The ABC system of inventory planning recognizes that 20 percent of the SKUs contribute 80 percent of sale. Generally, companies are required to keep stock of a large number of SKUs used in production and distribution. In practice, it is not possible to maintain and control a similar level of inventory of all items, which is also not feasible due to resource constrains. Hence, the prevalent practice is that sincere efforts are made to have a proper control on the most circulating items and least on rare circulating ones.

Here is quick method for determining VW-ABCDE Matrix: 1.The base of study is the sales volume which would be in quantity and in standard UOM. 2.The product or variety is called as “Article”.

3.Each Article has large number of SKUs – Each SKU is having 'Individual Number' or 'Code 'for identification.

4.The articles are categorised in four categorised ABC and D; A stands for first 70 percent sales, B for next 15 percent sale, C further for next 10 percent sale and D for last 5 percent sale. So, total sale is divided in four categories.

ABC analysis offers a basis for grouping of items on certain basis of 'annual or monthly consumption value.' In other words, of an items' unit price is very little but if it is most circulating items and its monthly or annual consumption value is maximum, then closer and carful control will be done and vice versa.

5. Now, each article has his own separate SKUs wise ABCD analysis similarly in same percentage ratio i.e. A: 70 percent, B: 15 percent, C: 10 percent and D: last 5 percent.

VW – ABCDE Matrix

6.The Articles and SKUs are further categorized in 'ABCDE' that is called VW –ABCD Matrix. See the given below figure indicating the categorization of ABCDE Matrix.

This Matrix is suggested for companies who deal in large number of products or varieties, and each individual product or variety is

ARTICLES A (70%)

B(15%)

C(10%)

D(5%)

18%

9.50%

49% A(70%)

SKUS

23.25%

B(15%) C(10%)

0.25% D(5%) CATEGORY

A B C D E CATEGORY

A B C D E TOAL

HOW CATEGORIZED (DESCRIPTION) A CLASS SKUS OFA CLASS ARICLES B CLASS SKS OF A CLASS ARTICLE, AND A & B CLASS SKUS OF B CLASS ARTICLES C CLASS SKUS OF A,B & C CLASS ARTICLES, AND A& B CLASS SKUS OF C CLASS ARTICLES D CLASS SKUS OF A,B & C CLASS ARTICLES, AND A, B & C CLASS SKUS OF D CLASS ARTICLES D CLASS SKUS OF D CLASS ARTICLES CONTRIBUTION IN %

49.00 23.25 18.00 9.50 0.25 100.00

SUPER FAST MOVING SKUS FAST MOVING SKUS AVERAGE MOVING SKUS SLOW MOVING SKUS VERY SLOW & NON MOVING SKUS

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September 2014

INDUSTRY Category-A: The SKUS of this category called “Super-Fast Moving SKUs” which are taken from A Class SKUscontribute 49 percent of Sales volume. The number of SKUs will be very limited (estimated 5-10 percent).

The items of this category need most close and careful inventory management because they are most important items from the sales point of view. Any stock-out on these items cost the company either in a production halt or loss of a customer. Hence, frequent reviewing of stock positon and consumption pattern along with maintenance of records to get the up-to-date positon of stock at any point of time are required. The full availability of this category SKUs supports the company to increase additional growth in sale.

Category-B: This category of SKUs called “Fast Moving SKUs” which are taken from “B Class SKUS of A class articles, and A&B class SKUS of B Class articles”, contribute 23.25 percent of sale in volume. The number of SKUs will be in bigger quantity as compared to Category –A (estimated 10-20 percent). The items of this category also need close monitoring because they also are important from sales point of view. However, the pattern of production planning could be different as compared to category 'A' SKUs. Category-C: This category of SKUs called “Average Moving SKUs” which are taken from “C class SKUS of ABC class articles and AB class SKUs of C class articles”, contribute 18 percent sales in volume, the contribution of this category in closer to

September 2014

category 'B” but the number of SKUs will be much bigger then category 'B' (estimated 20-30 percent).

The items of this category will not be given equal importance as compared to A and B class category. However, special focus would require in controlling the inventory which not exceed against the standard norms fixed for the category.

Category-D: This category of SKUs called 'Slow Moving SKUs” which are taken from “D class SKUS of ABC class articles and ABC class SKUs of D class articles”, contribute 9.5 percent sales in volume, the number of SKUs will be in large (estimated 40-50 percent). The SKUS of this category always create problems by having excess inventory, clearance of this inventory is another problem, the company clear inventory on high discounts and loss money. There is special focus in planning must require in this category SKUs. Some of company do not encourage inventory of this category, either produce on indent or special demand, or produce two-three lots together i.e. one month or above inventory in one shot to avoid production loss.

Companies also avoid carrying this category inventory at Regional Warehouses.

Category-E: This category of SKUs called “Very Slow or NonMoving SKUS” some of companies called “unwanted or dead inventory” which negligible contribute i.e. 0.25 percent. No company will be in favour to have such inventory which just create trouble, big loss by having blocked working capital, loss of space, money etc. The number of SKUs

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comes in this category are estimated 30-40 percent. It is unfortunate that companies in majority are carrying huge inventory which also estimates 1020 percent of total inventory.

Ideal situation is '0' inventory in this category, and in case of any demand from customer, the supply can be against confirmed order considering the production lot size, and on special lead time including time taken in production and delivery.

Conclusion The matrix suggested here helps tighter and more frequent control on high-priority inventory. Highpriority inventory or category A inventory, is the category of inventory that customer request most often. In manufacturing Cat-A inventory also can include the items most often used in the production of goods. Because Cat-A inventory is directly linked to the success of the company, it is important to constantly monitor the demand for it and ensure stock levels match that demand. With VW-ABCDE Matrix, a company can use its resources to prioritize control of high-priority inventory over inventory that has a lower impact on your bottom line.

Under this matrix, you can allocate your resources more efficiently during cycle counts. A cycle count is the process of counting only certain items on scheduled dates.

The frequency of your cycle counts and the items you choose to include depends on how often your inventory fluctuates. Once inventory is organized by category, you can focus regular cycle counts on Cat-A inventory.

GURU SPEAK

PROCESS

KNOWLEDGE

OPINION

HUMAN RESOURCE

Toyota Production System Every firm is keen to acquire the magic wand that will enable it achieve robust supply chain performance and resilience, at a time when supply chains are evolving into rich, data-intensive networks that not only perform efficiently and recover quickly from disruptions, but may also be able to spot and avert risks. A supply chain has to be resilient enough to recover from the multiple shocks that can quickly disturb sourcing, production, and distribution activities. Supply chains need to anticipate disruptions and incorporate recoveries. The Editor of SCMPro, Girish V S takes a peep into the supply chain innovations at Toyota.

S

upply Chain Digest Editor Dan Gilmore lists the Toyota Production system (TPS) as the number one supply chain innovation ever. According to Gilmore, “Toyota Production System (TPS) was the foundation of the company's dramatic success across the globe. Pioneered by Toyota's Taiichi Ohno and a few colleagues, TPS not only is the foundation for today's Lean manufacturing and supply chain

September 2014

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practices, but the concepts have penetrated versus every area business. TPS truly did change the world.� Toyota became the number one automaker in the world by around 2008. A large part of that credit goes to its tight supply chain.

Toyota's philosophy was aptly summed up by its first President Kiichiro Toyoda, when he said "....Our objective is to use small lot size with cheaper vehicles to compete with the cost of American Motor

PROCESS Companies by continuously reducing cost through waste elimination." The famed Toyota Production system (TPS) has come to represent best in class manufacturing practices. TPS was

all of the parts that are made and supplied must meet predetermined quality standards.

According to this philosophy, if equipment malfunctions or a defective part is discovered, the

established based on two concepts: The first, called "jidoka" (In Japanese, jidoka means automation. Toyota has modified it to mean "automation with a human touch") which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced.

The second is the concept of "Just-in-Time," in which each process produces only what is needed by the next process in a continuous flow. The heart of the TPS is Kaizen – or continuous small improvements to the process.

affected machine automatically stops, and operators cease production and correct the problem.

Toyota describes jidoka as: “Highlighting or visualization of problems. It implies that quality must be embedded into the manufacturing process itself, and not as a standalone function.

Jidoka is a necessary and critical approach for Just in time. For the Just-in-Time system to function,

Jidoka means that a machine safely stops when the normal processing is completed. It also means that, should a quality / equipment problem arise, the machine detects the problem on its own and stops, preventing defective products from being produced. As a result, only products satisfying quality standards will be passed on to the following processes on the production line.

Since a machine automatically stops when processing is completed or when a problem arises and is communicated via the "andon" (problem display board), operators can confidently continue performing work at another machine, as well as easily identify the problem's cause to prevent its recurrence. This means

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that each operator can be in charge of many machines, resulting in higher productivity, while continuous improvements lead to greater processing capacity, which leads to the process that revolutionized production - Just-in-Time – or Productivity improvement.

Essentially, 'just in time' manufacturing consists of allowing the entire production process to be regulated by the natural laws of supply and demand. Just-In-Time is making only what is needed, when it is needed, and in the amount needed. Just-In-Time means “producing quality products efficiently through the complete elimination of waste, inconsistencies, and unreasonable requirements on the production line.” In order to deliver a vehicle ordered by a customer as quickly as possible, the vehicle is efficiently built within the shortest possible period of time by adhering to three core processes.

One – passing on the order for the vehicle to the production without any delays – letting the customer o r d e r flow to According to this t h e philosophy, if equipment assembly malfunctions or a defective l i n e . part is discovered, the Once the o r d e r affected machine flows to automatically stops, and t h e operators cease production assembly and correct the problem line, it should have the required parts so that the ordered vehicle can be assembled.

Finally, the assembly line will draw the used parts from the parts-producing process (the preceding process). Just-In-Time

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also means that the parts producing process will produce only the numbers of parts that were used by the operator from the next process.

The interesting aspect of the TPS is that it empowers the workers – for kaizen or jidoka to work, the man on the spot should have the authority to stop the production line as soon as a defect is discovered. The Just-InTime process ensures that each process is a customer to the process before it and each process considers the next process as its customer.

Howe ve r, Toyo t a , w h o s e acclaimed supply chain innovation won it quite a

September 2014

number of admirers, got a jolt in March 2011. A devastating earthquake, followed by an equally disastrous Tsunami caused a major disruption in some of its suppliers.

The lean manufacturing and the squeeze on wasteful processes meant that some of the parts were procured from parts suppliers who had their plants located in the disaster zone. This led to production halts from regions as wide as China to the North Americas. Reports indicate that March production fell by 30 percent and it took suppliers six months to get back to normal.

This was unacceptable to Toyota – it wanted the recovery time to be reduced from six months to a couple of weeks. Such a drastic reduction cannot come from disaster recovery – Toyota needed a

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radical idea. Toyota wanted a system that could anticipate, if not the disaster, the disruption it would entail. Toyota responded to the crisis by assessing the vulnerabilities in its entire supply chain. They worked with their suppliers to either create higher buffers or spread the manufacturing around. To help the suppliers achieve economies of scale, Toyota standardized the parts used across its different models, so that the suppliers could invest in new production facilities.

Due to the use of common parts across models, Toyota could place larger orders with its suppliers.

And the suppliers did not have to manufacture a large number of similar parts. Toyota has reworked its supply chain to anticipate disruptions and reconfigure them.

GURU SPEAKS

PROCESS

KNOWLEDGE

OPINION

HUMAN RESOURCE

Building and Sustaining an

Enterprise Supply Chain Model In Part 2, we discussed the value that can be derived from a well designed and implemented supply chain model that is closely linked to an organisation's business strategy. By aligning the business resources and processes, there will be tangible improvements in business performance. In addition, we will also see reductions in business operating expenses from such an alignment. The value and benefits from such a structured approach, can be measured not only in financial terms but also in commercial value and organisational growth and development. Stephanie Krishnan, Joe Lombardo and Raymon Krishnan continue with the series.

The management engagement we are advocating, starts with a good understanding of how supply chains work and how they must be linked and adapted to the business strategy. This is a fundamental mind set change, which contrasts traditional management methodologies. It would be necessary for the CEO and his senior management to fully embrace such an initiative, as a formal Transformational Change Management program across the whole organisation.

Like with any major initiative, full engagement of top management is needed to provide the organisation with the inspirational and operational leadership towards a new direction. A program like this should be viewed as a medium to long term journey for the organisation, requiring an empowered project team to be created, to set the milestones, time line check points and monitor the progress. The goals would be dependant on the business model dimension, the organisation structure and the complexity of the transformational process.

Up-front preparation and planning work for the program are crucial to the sustainability and success of efforts and investments deployed.

Management would also need to facilitate the necessary resources, like a budget for education and training, as well as allowing the organisation the space to make the necessary transition, whilst maintaining current

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

September 2014

Top Management Commitment

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KNOWLEDGE business activities. Progress would need to be monitored regularly to ensure adherence to the program mandate and to allow management the opportunity to perform the appropriate tuning and adjustments as necessary. This attention to progress reviews, is part of the management commitment. Management at all levels, must make time to personally review the program progress– delegating such an important task does not inspire nor motivate the organisation to make any changes or take the program seriously.

Defining the Execution Model Once top management commitment and buy-in by key stakeholders has been established, designing the appropriate execution model will be crucial.

Setting-up a supply chain execution model does not have to be an unduly complex process. It is mandatory that top management define the deliverables (outputs or achievements) from the supply chain model, expressed as KPIs and deliverables, to focus attention on the right process priorities.

We should not confuse business KPIs with supply chain KPIs- which may appear to be similar but are not always the same It is relevant to note at this juncture that we should not confuse business KPIs with supply chain KPIs, which may appear to be similar but are not always the same.

Business KPIs tend to be more

financially-orientated, like percentages for sales growth, profit margins, market share and Inventory turns, OPEX (operating expenses), CAPEX (capital expenditure) and cashflow.

Supply chain KPIs measure the capabilities and performance of operational processes and flows.

Su p p l y c h a i n K PIs w o u l d generally, revolve around KPIs that measure “time”, “cost” & “quality” of supply chain activities and processes.

Depending on the part of the supply chain being measured, some KPIs used would be: product time to market, order cycle time, customer complaints, response time to customer complaints, machine downtime, time to machine uptime, and many other such KPIs. For the CEO and senior executives, they should typically define at least the Top 5 Supply Chain KPIs, they want to see in their daily, weekly or monthly Performance Dashboard.

This definition is fundamental at the design stage of the supply chain model, as it will immediately put in focus the management execution strategy. This is the first crucial step to link the Business Strategy with the Supply Chain Execution Model.

Building the Supply Chain Execution Model In Part 2 of the series we introduced the business cycle and supply chain model. The chart below illustrates the three major blocks of the supply chain execution model. This is the foundation for the alignment of the business cycle and the supply

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chain execution model.

Supply Chain Model Customer

Demand Fulfilment

Demand Creation Demand Management

Company Business Cycle & Supply Chain Model

In Part 2 we also highlighted that complicated organisation charts, elaborate job titles and strange job positions, having evolved over time and due sometimes to some legacy reasons, often confuse and distort the relevant supply chain functions and capabilities enablers.

As we move to build the supply chain execution model, we will discard all traditional organisation charts, departments and job titles and go back to basics. We will instead, start by taking the Top 5 KPIs given to us by the CEO, and ask ourselves, what are the capabilities that we need in the company business model to achieve our business and supply chain KPIs? To address this question, we will use the supply chain model and attach the core capabilities that we consider relevant and necessary to drive the business cycle and the supply chain execution model.

To start the building of the right model, it will be sufficient to address the high level and important capabilities first. The second and third level capabilities in the model, will emerge as the model is expanded to cover all the

September 2014

key organisational functions.

In this next chart, we identify some of the typical core operational capabilities necessary to achieve effective execution of the business

We started this series with a simple overview of the supply chain model and linked it to the three major business blocks. By then adding the core capabilities to each major

Core Capabilities in Business Cycle & Supply Chain Model Innovative Products Product Design & User Applications

Supply Chain Model

Sales & Marketing Drive

Demand Creation

User Friendly & IT Driven Ordering Systems

Robust IT & Quality System

Integrated Planning & IT Systems

Outsourcing Capacity & Flexibility

cycle. These are just a few of the key capabilities and there are many others, depending on the type of business, industry sector and product/services.

Using this approach, we can see a whole new dimension and a new organisation emerge around the core business cycle. Not as departments or a hierarchy of charts but as clear tangible drivers of the business.

Managing change is also a fundamental to keeping the freshness of the business strategy and effective supply chain performance This approach to build the right execution model will also facilitate a clearer definition of the key business processes, adapt them to market and customer changes as needed and also enables a system to control and m e a s u re p e r f o r m a n c e i n a structured and responsive manner.

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Delivery Execution Capabilities Demand Fulfilment

Inventory Positioning & Flexibilty Shortest Leed Time Effective Early Warning System Structured Product on Control

Such an approach to building the execution model, is a dynamic and scalable one. We could add, amend or eliminate various levels of enablers and capabilities as required.

The model will enable management to have immediate performance levels information about their supply chain.

When we have established the clear links to each of the three major blocks and business capabilities–starting from the business strategy, to the business cycles and to the supply core capabilities- the organisational structure can be recompiled into the

Customs & Trade Compliance Processes

Demand Management

Customer Relationship & Customer Service Strong Manufacturing Science

Just-in-Time Delivery Management

Customer

Reliable Leed Time Visibility

Track & Trace Tools & Processes

Logistics Network Controls

chain execution model.

Effective Procurement & Sourcing

Company Business Cycle & Supply Chain Model Supply Chain Model Customer

Delivery Execution (Logistics)

Product & Services Planning

IT Customer Service

Demand Creation R&D Engineering Sales & Marketing

Capacity & Resources Management

Quality

Demand Management Sourcing Procurement & Outsourcing

business blocks, we have created the various relevant links in the supply chain. It is fundamental to note that core capabilities are realised by the drivers and enablers in the organisation. It is these core capabilities and the interconnections with the various business blocks, that will ensure the execution model, is able to deliver the required performance of the supply chain, hence the supply

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Demand Fulfilment

Inventory Positioning (Warehousing)

Transformation Capabilities (Manufacturing)

recognisable traditional blocks, and linked to the business cycles.

In the next illustration, we show how the organisation structure takes on a new dimension, one with a clear connection to the supply chain that eliminates the silo organisation.

This new structure will be a robust one that shows the real contributors in the business cycle and in delivering the supply chain

KNOWLEDGE execution capabilities that have already been defined.

supply chain execution model they have created.

Having linked the core supply chain capabilities, to the business cycles, and by ensuring that the functional departments are able to execute the business strategy, will deliver an overall higher level better performance.

Sustaining an organisation with balanced competencies, synchronised process and the capabilities to meet performance expectations, is a challenging proposition. Considering that market conditions are continuously evolving and where the human resource is an important aspect of the capabilities, change management may seem to be a never ending challenge. But failure or delay to address this reality however, will result in uncontrolled variables disrupting the execution capabilities. This would undoubtedly deteriorate business performance and eventually even threaten the business viability.

T h e re a re m a n y d i f f e re n t functional departments in an organisation. It is however crucial, to ensure thatevery department is linked to the business cycle in the supply chain execution model.

This means that each functional department must contribute the relevant capabilities to actively support the business cycles in the supply chain execution model. If a functional department or group does not play a role in the supply chain execution model, it should be challenged and the reason for being there questioned.

Sustaining the Supply Chain Execution Model We h a v e d i s c u s s e d t h e fundamentals of how to build a supply chain execution model, linking the business strategy, key business cycles and the identifying core capabilities required to drive the supply chain. The realisation of such an organisational transformation will be challenging in the transition phases, but will bring many benefits to the business once the balance and alignment has been successfully completed.

Even before the completion of this transformational journey, a new challenge will emerge. The question now becomes one of how the CEO and his team will sustain the effectiveness of the transformed

Managing change is a crucial dimension in the sustainability and growth of a business. But managing change is also a fundamental to keeping the freshness of the business strategy and effective supply chain performance.

Even after a supply chain has been well designed, implemented and is working well, the expectation that the effectiveness and smooth operation can continue indefinitely, is a fallacy. There is no supply chain that can work on remote control, unattended or impervious to the various change factors that surround the business realities. Sustainable performance requires a constant review and a continuous corrective mind-set, to maintain the intended high performance levels.

The supply chain execution model is like the veins of a human body

33

that carry signals and resources around the body. By virtue of being the business “bloodline�, the supply chain will take on new characteristics when changes are induced into the critical operational areas. These changes will alter the capabilities and will undoubtedly change the deliverables.

Such an approach to building the execution model, is a dynamic and scalable one In Part 5 we will be looking Understanding & Managing Risks in the Supply Chain, which is also an important factor that impacts the challenges of sustainability Whether the changes are accidental or deliberate, they all need to be properly assessed and managed, before implementation. This is essential to maintain the coherence and balance in the capabilities that enable the delivery of performance targets. .

The sustainability of the supply chain execution capabilities therefore requires a structured and competent governance culture and a CEO that is also attentive to the disruptive changes. The CEO and his executives, must also continue their engagement in the transformational processes, that will require a subtle period tuning to ensure change in managed as part of the day-to-day business.

In Part 4 of this Series we will be looking at People & Competencies in the business cycle and supply chain execution model. This aspect is an important element in the organisational structure and performance.

September 2014

GURU SPEAK

PROCESS

KNOWLEDGE

OPINION

HUMAN RESOURCE

Connecting the dots:

Supply chain in the dotcom era S

Kanika Bhutani Associate Director, Fraud Investigation and Dispute Services EY

The e-commerce boom in India has sparked a revolution in retail while simultaneously placing the customer in the driver's seat. The growth that has been witnessed in the space, and the forecasted potential, is momentous and has retailers aggressively vying for increased market share. While it's evident that the future will see the 'survival of the fittest', this segment has realised the need to evaluate their internal functions and make amends so as to differentiate their proposition.

September 2014

upply chain and logistics are core competencies for entities in this segment, and ironically these are the functions which lack thorough visibility; this inadvertently leaves the retailer vulnerable to losses. Management of the retail supply chain is a key element of a retailer's central mission of getting the right amount of product, at the right time to the right customer in a cost-effective way. Another essential facet of supply chain management, which organizations tend to overlook, is the incorporation of an efficient risk management system. While the value of an efficient risk mitigation structure is underestimated today, as we progress into the digital age the benefits will become more widely visible and tangible. Here are a few areas to consider as important elements in paving the future of an efficient and cohesive supply chain:

A key driver of complexity in a retail environment is the number of unique Stock Keeping Units (SKUs) and the number of formats and fascias The high-expense of the online game With the advent of 'pure-play' online retailers, who captured the market with their customer first approach through offers such as same day delivery and cash on delivery etc. had a lack of focus on initial Return On Investment. This approach has set the bar in the industry and has driven traditional high street retailers to launch online channels to complement their existing business model.

Some 'brick-and-mortar' retail businesses have invested heavily in setting up online retail channels to gain competitive advantage, only for this new channel to remain autonomous from the core business. In the early days of online retailing this might have been due to a conscious decision not to divert management attention from core business operations. However, as online retailing is growing significantly to be comparable in magnitude to traditional operations, this can result in wasteful and disruptive duplication of functions in areas such as marketing and supply chain.

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Traditional retailers will need to recognise that they may need to make significant investments in Information Technology (IT) when looking to become a multichannel retailer. This may well represent a step change from how they have operated before, with requirements for 24X7 reliability, availability and security of customer data. The best retailers are integrating their offline and online supply chains and investing in versatile supply chain systems and scalable, flexible online platforms.

Smart tech integration Although the struggle with the supply chain mechanism has been a traditional hindrance and a black hole of sorts, technology has slowly helped bridge a number of gaps.

Technological advancements and breakthrough implementations are now paving the way for a more informed and controlled mechanism of supply chain management.

A key driver of complexity in a retail environment is the number of unique Stock Keeping Units (SKUs) and the number of formats and fascias. Whilst offering a large number of SKUs may seem to be offering customers what they want, it adds cost to the operation. High SKU counts result in larger distribution centres, higher stock levels, more suppliers to manage, and more effort to maintain product availability. To support this complexity reduction in retail operations, warehousing and merchandising IT systems should be integrated and not reliant on human intervention to transfer information from one system to another.

Backward integration Taking off from efficient technology implementations in the supply chain framework, organizations could also look at backward integration to ensure streamlining of logistics, with the vendors or third party logistic providers. The logistics industry is extremely competitive, leading to thin margins or often losses. It is dominated by unorganized operators with five or fewer trucks that results in inefficiencies and diseconomies of scale. While freight rates have gone up in the recent years, fuel costs have trebled further eroding the margins. Backward integration helps eliminate the fragmentation and apart from the lower cost benefits for the retailer, it also helps increase visibility and automates the process through the customised use of technology. These dynamics help avert misuse of the process and enhance predictability through the use of analytics and shared market intelligence.

Mitigating risk and corruption Among all the elements mentioned above there needs to be due diligence conducted in monitoring the organisations efforts. When the supply chain becomes complex the risk of inflated invoicing, manipulated margins, kickbacks and collusion between the supplier facing employee and contractor, is high. It is therefore crucial for brands to understand and map the supply chain. Therefore, there should be routine monitoring to assess their compliance so as to identify red flags and fraud vulnerable areas. It is prudent to invest in compliance support at these levels through awareness generation, capacity building and continuous

35

monitoring. Both internal and external resources can be utilised for this purpose. This can be achieved by aligning supply chain compliance and integrity initiatives with the overall business strategy.

When a brand and its supply chain implement the Code of Conduct and practice sustainable compliance it creates value leading to employee satisfaction, environmental improvement, increase in production and sale, brand image and appeal to investors and consumers When a brand and its supply chain implement the Code of Conduct and practice sustainable compliance it creates value leading to employee satisfaction, environmental improvement, increase in production and sale, brand image and appeal to investors and consumers. Value creation builds human capital, social capital and environmental capital further reinforcing the financial capital.

Amongst many challenges, brands today have to deal with the new challenge of supply chain compliance and integrity and remain profitable at the same time.

From a short term perspective, expenditure on supply chain compliance and integrity may appear to be an additional expense but it the long run it is lucrative and is in the best interest of the brand. In fact it should not be viewed as expenditure but an investment for sustainable development. Why stay behind? Make a difference. Invest in supply chain compliance and integrity and reap long term benefits.

(Note: Views expressed in this article are personal to the author.)

September 2014

A Case for

Appropriate Technology in SMEs SME have a significant impact on the supply chain performance. An SME could be a buyer, a seller or a distributor. The SMEs role as sellers - or suppliers to large manufacturers create significant opportunities for them to deploy technology for greater efficiency. As suppliers to large firms, SMEs do not have the negotiation powers to defend their bottom lines. SMEs are in a constant struggle to save costs and maintain if not improve their product and service quality. Mayur Aggarwal Director ShipEasy discusses the role of technology in shaping SME supply chain efficiency.

I

t would be noteworthy that before we start discussing challenges for SMEs, we observe that India has the second highest SMEs in the world and contribute 45% of the manufacturing, 40% of the low to medium skilled workforce, 40% of the exports of India but contribute only 16% of the GDP.

Mayur Aggarwal Director- ShipEasy Industrial and Systems Engineer from Virginia Tech, USA. Operates an Industrial Sourcing and Solutions business.

September 2014

Between these numbers we have a hidden picture which shows SMEs are dependent on manual labor, are exposed to international market but are not creating high value products.

Mass production of low value products from traditional manufacturing techniques mean dependence and exposure to less or negligible expertise and technology being used in operations. This creates

36

massive hurdles for SMEs to have a superior understanding of their Supply Chain compared to their peers say in Germany or even China.

This creates massive hurdles for SMEs to have a superior understanding of their Supply Chain compared to their peers say in Germany or even China.

Let's analyze how an SME would be operating. Bulk orders and cost competitive products means the enterprise has to promise delivery on time or lose out to competition. In order to deliver, every enterprise has

to Plan, Schedule and Execute. A paper or excel sheet dependent enterprise neither has the insights nor the foresight to assist it in any or all of the above departments.

Systems now interface with even the most basic of ERP where solution providers themselves assist businesses in Installing Bar-coding devices.

If SMEs are always going to be focused on delivering and dispatching on time, their products will not evolve onto a high value commodity. Research and Development of the products and services by our SMEs has been driven by reproducing their customers blue prints. This results in the high value additions pushed to your customers or your suppliers. Only a smooth Supply Chain of the SME can allow them to deploy resources on improving their products valuation.

Traditionally SMEs either invest in their own fleet; and many a times the owned fleet runs underutilized but most of the times add costs to already a cost competitive product or service. SMEs have major trouble in outsourcing their fleet operations due to availability concerns. Hence SMEs enter into three to six month contract with transporters to support their needs in a somewhat assured manner in terms of availability and rate. An SME situated in an industrial park faces yet another uniquely Indian, but debilitating factor – the monopoly of a few brokers or fleet owners in providing logistics service to the units in the industrial park. This cause great hardship as a contracted broker controls the supply of fleets and hence can control costs as well. The SME has no choice but to pay the rate demanded.

Organizations need to be open to learning or hiring expertise. The increase of supply chain efficiency will be driven with expertise and not frugal spending. Planning your purchases and inventory levels can unlock valuable capital to allow expansion and modernization of your asset base. It is imperative market ERP solutions adapt to assisting SMEs above and beyond merely installing it on their systems.

Internationally, Supply Chain operations are driven by Third Party Logistics (3PL) providers which can free a business from investing in its logistics infrastructure. A 3PL can effectively plan and leverage fleets and warehouses on hire to execute Less Than Container/Truck Loads.

Currently some of the red flags for a SME to select a 3PL for its fleet operations is trust. Is the 3PL supporting the SME in a manner of assurance of availability, support and pricing as its own logistics department does? Is the support going to be as minuscule as the earlier market broker? 3PL also need to invest in a complete solution rather than partial solutions to grow with their market acceptance. A 3PL that can support an SME as a partner would probably win in the long run much more than shrugging infrastructure and manpower investments initially.

Density chart by MarineTraffic.com showing cargo ship activity in green and tanker activity in red in the Channel and Rotterdam area, July-December 2013

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September 2014

Frugal and Robust technology systems are a need of the hour and SMEs have to open up to such solutions without prejudice. Constant questions I face from my customers are whether their details of suppliers and customers and their prices will be at jeopardy.

As a technology company focused on making operations lean and systematic, we are at a complete loss if we lose our customers data. Do not invest in a “Unicorn” solution when your organization demands a “Mule” from your technology solution.

Let us analyze the technology aspect of the problem.

Currently Tally is by far the most utilized technology piece for SMEs, which is a ledger solution focused on Financial and Taxation solutions. The i n t e r n a t i o n a l l y d e p l oye d enterprise solutions are out of the budget for most SMEs, unless their customer or supplier pushes the system across to them. An Enterprise solution with the right analysis of a business can give valuable insights to the Business's complex Supply Chain interaction.

Internally an SME can upgrade its processes using Bar-coding as

Industry expertise can then guide you into changing your supply chain in a manner that would allow you to 'plug in' a 3PL or your local broker or invest in your fleet.

September 2014

a fool proof mechanism for Inventory count and control.

Systems now interface with even the most basic of ERP where solution providers themselves assist businesses in Installing Bar-coding devices.

If we go by what Walmart has done to all its suppliers, where in they have to put a Radio Frequency Identification (RFID) chip on every SKU, we can bring our Supply Chain to Life. SMEs should learn from their local malls which have brought tremendous efficiency and bare minimum Human skill needed to manage a complex operation like a Big Bazaar.

SMEs that are dependent on their perishable products to be sent to overseas markets using Sea or Airline route, then technology can assist them as well. After the tragic disappearance of MH370, numerous Airline tracker website came to limelight.

Similarly for Sea freight, w e b s i t e c a l l e d Marinetraffic.com allows businesses to track their shipment across multiple carriers and see the delays.

This can assist tremendously in identifying the right Carrier to take your farm commodity to your market in a timely and efficient manner.

Though enthusiasts are the main users of websites for tracking, SMEs need to open up to technology quickly in hopes to delivering the dream of our leader PM Narendra

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Modi of “Made in India” An Enterprise solution can drastically shape your business for the future or send you learning new methods which will lose your organization precious time. A technology partner should be evaluated for its solution by using a comprehensive testing and demo sessions. A technology solution is only as good as its team and many a times SMEs tend to lose focus in the flash and glamour of an IT sales team.

For accepting a technology solution to manage their Supply chain, a SME should have a similar expectation as their customers or suppliers. Some other points of concern while selecting an ERP solution should be your industrial vertical as well as have the departmental horizontal focus.

In conclusion, a robust ERP for your operations will give you insights which will allow you to make key decisions to your Supply chain management.

Industry expertise can then guide you into changing your supply chain in a manner that would allow you to 'plug in' a 3PL or your local broker or invest in your fleet. Decision making will become much easier with openness to using technology to show insights.

Currently all industry verticals from Retail to Networking are being driven by the “Internet of Things” and SME should accept it as a valuable tool to scale their operations for their future.

SCMPro CLASSROOM

Piyush Shah Director ISCM, Research Editor- SCMPro

Inventory Classification M

ost supermarkets easily carry more than 50,000 SKUs. A car could easily have around 10,000 separate parts. We had discussed the creation of inventory policies in our previous Unit price Sr Item Code (Rs.) article. In a scenario where the number of SKUs is so large, it 1 D3012 1,430.00 becomes impossible to frame 2 B0025 1,024.00 policies for every individual 3 D7169 438 product. The only solution is to 4 A6548 725 classify the material under different 5 P2405 95 heads and create policies for each 6 P5032 110 head.

7

M8524

The firm here has 10 SKUs with varying levels of unit price and consumption. The table makes it clear that the first two items (2 Units consumed (Rs.)

85

It is per se best to create inventory 8 B5894 7 targets for individual items.

9 D8563 16 However, the cost of creation and 10 D4586 520 monitoring of such individual targets would be very high. The decision maker would have to first study the consumption for every individual material (yes, every one of the 50,000 SKU in a retail store) and then create the inventory targets for each.

Instead, we classify material into groups by simpler criteria and then set policies for such groups. Whatever we lose in terms of exactness we gain much more with the ease of operations.

Consumption value Cumulative % of total consumption (Rs.) value

Class

430

6,14,900.00

37%

37%

A

520

5,32,480.00

32%

69%

A

485

2,12,430.00

13%

81%

B

195

1,41,375.00

8%

90%

B

825

78,375.00

5%

95%

B

275

30,250.00

2%

96%

C

295

25,075.00

2%

98%

C

2400

16,800.00

1%

99%

C

700

11,200.00

1%

100%

C

7,800.00

0%

100%

C

15

16,70,685.00

out of 10, 20% of SKUs) contribute about 69% of consumption value. They are the A class items. The next three items that contribute 26% of the value are the B class items. The remaining 5 items (50% of the SKUs) contribute only 5 % of the value.

Other classification methods

Introducing ABC

ABC is not the only method of classification. There are many other methods used based on lead time, average unit cost, substitutability, commonality, scarcity, frequency of usage, demand distribution, obsolescence, impact of stock out, frequency of issue, etc. Each of these methods can have a specific use. Many firms apply a 'runner, repeater, stranger' classification that uses the number of units used as a parameter for classification. Another similar system is called 'Fast, Slow, Non moving' (FSN) classification. The 'scarce, desirable, easily available' (SDE) grouping is about the ease of obtaining the

ABC classification has been one of the most used means. Here we classify inventory based on the past total value of usage.

Please note, that the value here is defined as the past consumption value, which is the unit cost (or price) of the material times the quantity used. Typically the top 10% to 15% of the SKUs would contribute around 70% of the value, the next 20% to 30 % would contribute 25% of value and the last 55% to 70% of the items would contribute only 5% of the value. See the table for an example of classification.

September 2014

40

SCMPro CLASSROOM material. For spare parts a classification can be based on 'Erraticness', a measure of how erratic the demand is in terms of the demand volume and the timing of demand.

An auto firm created a special 'D' class in the ABC analysis to account for the packing materials which were very cheap but unusually bulky. A warehouse classified items based on the number of times it is issued. A medical supplies distributor used the number of customers per item as an attribute for classification. There are always exceptions to the standard methods.

The idea is that the classification must allow us to achieve our objective in the most effective way possible.

Uses of classification The C class items usually have a lower unit cost and hence have a very cost of carrying. And, precisely because of their low unit costs, the ordering cost per unit item cost is very high for C class. Thus, we have liberal policies for C class items.

We would order less frequently, the units ordered per order would be large.

The safety stock (or service level) for these parts would be high. Exactly the reverse would be true for the A class items. Because of their high unit cost, we would order these items more frequently and in small quantities.

Considerable more management attention is devoted to A class as compared to C class. Generally, we use the perpetual system for A class and periodic system for C class items.

For a warehouse, the items that are ordered more frequently are stored closer to the despatch area. In fact, some warehouses use the concept of number of times an item is ordered rather than the units ordered. For example, an item that is ordered 30 times a day (maybe in very small numbers in each despatch)

should be stored closer to the outbound gate rather than an item that is issued only 4 times day (but maybe in large quantities. Correct classification can thus make a significant difference in the time spent in picking the articles.

Cycle counting uses the classification to schedule the inventory counts. A class items are counted once every month, B class once a quarter and maybe C class in every six months. Since the errors on A class obviously hurt more than those in C class, the A items are counted more frequently. In procurement the item classification decides on the hierarchy of the final signatory for purchase orders.

C class items are generally paid for with consolidated once a month invoices.

The medical distributor uses the number of customer based classification to arrive at overheads for the item (items with higher number of customers are allotted a lower overhead). The same classification is used by sales executives of the firm to cajole customers to change their brand preference. In the spares business, the method of forecasting used can depend on how smooth the demand pattern of the concerned spare is.

Multi Criteria Classification Sometimes the standard methods and its offshoots may not be enough. Some firms combine the classification methods and create a new system based on a dual system. For example, a 3*3 grid could be created using ABC and FSN classification. Thus we would have fast moving A items, fast moving B items, fast moving C items, slow moving A items, etc. This would give us 9 groups. Thus we can have a more focused inventory policy.

In a typical distribution network, the fast moving A category items would be decentralised and stored at more

41

locations than the slow moving A items.

The fast moving items would have a lower obsolescence risk. The A category would have a higher inventory value.

Thus using both these ideas together, a 9 item distribution policy could be created.

Again, there is of course a way of using three attributes in creating groups. They would surely help in creating more focused policies. But, when we use three attributes, and each of the three attributes has three categories, we end up with 27 groups. With more groups we defeat the basic purpose of the classification – which was to reduce the administration hassle (and cost) of managing the inventory. In an ideal sense, the multi criteria systems must have only two attributes with around 3 – 4 categories in each attribute.

There are also cases where firms have used a composite measure. Assume that the inventory consumption value, lead time and demand variability are all important for a firm. Based on a pre set formulae of weighted averages a composite score is created for each of the items based on all the three attributes. The final inventory classification is based on these composite scores.

Last words In the previous classroom article we had discussed the basic concept of creating an inventory policy. To factors, when to order and how much to order were the key policy decisions. Service and inventory levels are both dependent on the policy decisions. In this article, we have talked about inventory classification. Policies have to be applied to inventory classes rather than to individual items. Thus accurate and reasonable classification becomes important.

September 2014

This paper investigates the fundamental building blocks of supply chain agility, which is conceptualized as supply and demand side competence. While the former refers to production and supply management related activities, the latter refers to distribution and demand management related activities. The model further assesses the influence of supply chain agility on operational performance, as well as its mediating role in the relationship between supply and demand side competence and performance. Within this framework, process compliance, i.e. how well supply chain management processes are internally executed by the firm's employees, is viewed as an enabler (moderator) on the relationship between supply chain competencies and supply chain agility.

SCMPro brings you excerpts from the article.

Antecedents and Enablers of Supply Chain Agility and Its Effect on Performance:

A Dynamic Capabilities Perspective Blome, Constantin, Schoenherr, Tobias, Rexhausen, Daniel.

International Journal of Production Research.

Feb 2013, Vol. 5, Issue 4.

September 2014

42

I

n an environment where the only constant is change, supply chain agility has become a source not only for competitive differentiation, but in some instances also for the long-term sustainability of an organization. As such, firms need to constantly scan the environment to react and adapt not only to changing customer needs and transforming supply environments, but also to the ever-present potential of supply chain disruptions. Within this context, supply chain agility can be defined as a firm's ability, in conjunction with its key suppliers and customers, to quickly and effectively react to changes in its environment. Inherent in this conceptualization is also the firm's flexibility and its ability to rapidly and successfully reconfigure key resources in an attempt to remain competitive.

Due to the practical relevance and importance of supply chain agility, further scientific investigation has been called for.

While the benefits of supply chain agility have generally been recognized, research is still void in terms of the antecedents of supply chain agility, as well as the contextual influences that may facilitate or hamper its creation. Given that the importance of agility is constantly rising in today's dynamic

environment, the investigation of how such capability can be built is of utmost criticality. Against this background, the objective of this study is to contribute to academic theory development and practical guidance in the realm of production research in two specific ways.

First, the authors consider what they believe to be two fundamental building blocks of supply chain agility: supply side competence and demand side competence. While the former is defined as a firm's proficiency in managing its upstream (supply-related) activities (e.g. supplier and production management), the latter is defined as the firm's ability to effectively manage downstream (demandrelated) aspects (e.g. demand and distribution management). Both aspects have become of critical importance due to a firm's increasing reliance on supply chain partners, heightened supply chain vulnerability, and the rising power of c u s t o m e r s . H o w e v e r, t h e i r importance in contributing to supply chain agility has never been demonstrated. Basing our arguments on there source-based view of the firm augmented with the dynamic capabilities perspective, the authors theorise and test the criticality of both competencies for a firm's supply chain agility.

The authors further forward the idea of supply chain agility representing a dynamic capability able to positively

influence the operational performance of the firm. Within our context the authors define operational performance as a firm's competitive position in terms of supply chain cost, customer service delivering the right quality and right quantity at the right time), service level performance (on-time-in-full deliveries), and supply chain flexibility. The contention of supply chain agility influencing operational performance rests in the notion that a firm's ability to dynamically and effectively match its resources to market changes should also aid its efforts to maintain a competitive position. In addition, to determine the central role of supply chain agility, the authors assess its significance in mediating the relationship between supply and demand side competence and performance.

The concept of agility has experienced increasing attention in production and supply chain management research due to its importance for managerial practice And second, the authors consider the contingency of process compliance as moderating the relationship between supply and demand-side competence and supply chain agility. Within this context, process compliance is defined as the perfect execution and adherence to specified supply chain related processes (e.g. production and distribution management processes). The rationale for this influence is based on the understanding that appropriate infrastructure needs to be acted

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upon, in order for the competencies to be most effective in influencing supply chain agility. As such, drawing on process-oriented literature and information processing theory, the authors expect the relationships to be strengthened in the presence of high process compliance.

Theoretical foundation The concept of agility has experienced increasing attention in production and supply chain management research due to its importance for managerial practice.

The context in which the idea has received most consideration to dateis that of manufacturing, in which agility was seen as an emerging competitive weapon, a requirement for world class manufacturing performance and as a new paradigm in manufacturing. For example, Narasimhan et al. combine agility with leanness, Ismail et al. consider agility as a building block for mass customisation, and Ismail et al. investigate the role of agile strategic capabilities in achieving resilience in manufacturing-based small companies. One of the first scholars to consider agility within the supply chain management context was Fisher, with subsequent works further stressing supply chain agility as a business-wide capability, enabling the firm to respond to changing market environments. As such, agility is characterised by flexibility and speed/ responsiveness, and spans organisational structures, processes, information systems, and mind-sets. Supply chain agility thus extends beyond a single firm and involves alignment with major customers and suppliers. Recent work investigates the relationship between flexibility and supply chain

September 2014

agility, and the link between integration and supply chain agility.

The authors of both studies stress the importance of research in supply chain agility, and note the limited amount of scientific evidence pertaining to its study. In the present research the authors follow their call for further investigation, and seek to contribute to the important concept of supply chain agility within the context of supply chain management. The authors build on and augment extant research on supply chain agility.

While the authors focus in the review on empirical research, the authors also note the significant work that has been done on the modeling side, which provides decision support for the evaluation of agility in the supply chain using fuzzy association rules mining the design of an agility index measurement using a multi-grade fuzzy approach.

While this research was able to provide some intriguing insight into the role of supply chain agility and dynamic capabilities perspective, limitations exists Conclusion and future research directions While past research has highlighted the key role of supply chain agility for achieving competitive advantage, relatively little research has focused on the antecedents of supply chain agility. The authors addressed this gap, and studied the importance of supply chain specific precursors. The authors provided a finer-grained understanding of the role of supply chain agility as a dynamic capability, and highlighted

September 2014

its mediating effect in the relationship between supply chain competencies and operational performance. As such, the authors provided insight to an issue that had not been addressed in extent supply chain management research.

Moreover, the authors offered evidence suggestive of the moderating effect of process compliance on the relationship between supply- and demandcompetence and supply chain agility, contributing also to the exploitation-exploration debate.

Overall, by increasing our understanding of emerging models of supply chain agility, its role as a dynamic capability, its antecedents, its performance implications, and its performance enhancers, this study makes worthwhile contributions to production and supply chain management literature, as delineated above.

While this research was able to provide some intriguing insight into the role of supply chain agility from a dynamic capabilities perspective, limitations exist. Specifically, the authors assumed that the processes queried in the survey were effective and valid and represented the best approaches on completing the tasks.

This characteristic was assumed, rather than formally tested, due to the unavailability of data. The authors feel, however, confident that the sample represented proficient and high-performing firms. This was achieved based on the specific choice to collaborate with the German supply chain association in general, and then also specifically by the careful selection of potential respondents. The membership in the professional supply chain management association may possibly be

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indicative of the firm's more proactive approach to supply chain strategy. Further confirmation was provided by the above-average values on a set of questions in the survey that assessed the firm's perceived overall supply chain performance.

A further limitation pertains to the contextual administration of the survey in Germany. While the authors expect similar results to hold true in countries of similar development and industrialisation, the authors cannot ascertain this fact. In addition, the authors relied on a single respondent to obtain insight about the firm's supply chain, which is a common limitation in related research; a more ideal approach would have been a dyadic or even triadic survey design.

Additional avenues for future research exist. Besides working to overcome the above limitations, research can beextended by the incorporation of secondary data to analyse overall firm effects, as the authors only focused on operational performance assessed via perceptual m e a s u r e s . H o w e v e r, t h e measurement of supply chain agility solely by objective data may be a hurdle, since appropriate data that capture the underlying notion of agility must be available. Extending the seminal work of Lee provides further research potential, as interaction effects of agility, adaptability and alignment on corporate performance have not been investigated in empirical research. It is hoped that the present work provides motivation and impetus for the further investigation of the important domain of supply chain agility.

WAREHOUSING

Dip in Warehouse Productivity?

5 basic elements that need attention!

W

hen warehouse productivity takes a downward turn it is often due to the fact that warehouse managers often overlook certain simple warehouse elements. This article is aimed to alert warehouse managers by trying to throw some light on these simple warehouse elements.

Floor

Mr. Ananth M K Project Manager- Miebach Consulting He has been in Supply Chain Consulting for past 7 years. He has worked across industries like FMCG, Chemical, Auto Spares, Retail, Logistics, etc.

You can reach the author at ananth@miebach.com.)

Without a doubt, the floor is the most abused element in any warehouse. More often than not, it is also the element which receives the least professional attention which compounds into floor becoming the biggest troublemaker in the long run.

Floor joints, if not maintained regularly, lead to widening gaps which in turn might cause the following resulting in reduced speed of operation:

Accumulate dust & dirt

Damage to the tyre and wheel of the material

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handling equipment (MHE)

Safety risk – jerks in MHEs which might

cause pallets to destabilize momentarily

Poor ergonomics, with the jerk getting

transmitted to the driver For smooth operations, it is important to maintain the floor of the warehouse by regular refurbishment with protective layers like PU. More often exercise like these are postponed and forgotten which might result in the following:

Produce dust due to wear - the dust, thus generated, settles on motors, sensors etc., leading to maintenance issues

Exposing reinforcement steel which is

another hindrance to movement Usually, warehouse floors are maintained by internal facility maintenance services that are not technically equipped to take care of the above mentioned problems and instead

WAREHOUSING restrict themselves to sweeping and swabbing with cleaning agents, which are mainly housekeeping and not sufficient to ensure the usability of a floor.

Takeaway No.1: It is always advisable to have a technical assessment of the floor done on a regular basis and the recommendations, thus stated, implemented Roof The roof of a building is usually designed for the applicable weather conditions, but is definitely one of the most neglected elements of the warehouse, often, due to lack of easy accessibility. The negligence of the roof might also be because, sometimes, it is not included in the maintenance contract.

Leaky roofs might cause any of the following:

Product or packaging damage –resulting in more

picking/ packing/ consolidation effort

Render areas of a warehouse unusable due to leaks

Other operational hazards like dampness, slippery

patches, mold, algae etc.

Roofs which have slopes have drains at the edges, which, if clogged, cause seepage of the accumulated water into the building, damaging the walls as well.

Takeaway No. 2: Ideally, the roof, similar to the floor, needs to be assessed by a skilled sky-worker (a person trained to work at heights) on a periodic basis, thereby ensuring it is robust enough to withstand the weather of any season.

Light fixtures Lighting is one of the most important factors impacting productivity in a warehouse. A 'correctly' lit warehouse (too much of brightness/ glare might also drive the productivity down) will definitely have people with better productivity.

Usually, light fixtures are prone to dust settlements which reduce their light output; result– dark and gloomy workspace leading to:

Reduced productivity

Wrong picks, wrong scans & other similar

mistakes

Poor ergonomics

Thankfully unlike the floor & roof, lighting does receive attention from the maintenance teams, albeit not as frequently as required.

Roofs also have translucent sheeting for about 5% of the roof area, in an attempt to use natural lighting.

However, these sheets are usually made of polycarbonate and need to be cleaned or replaced to ensure that they let in sufficient light.

Roofs need to be designed to be cleaner-friendly, i.e. having provisions for hooking the safety harness.

Absence of these provisions is also a deterrent in the maintenance of the roof. It is also important to note that roof maintenance is almost impossible during monsoons due to wind & slippery surfaces.

Takeaway No.3: Have a well-defined frequency for cleaning and / or timely replacement of the light fixtures.

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WAREHOUSING Batteries Batteries of MHEs in the warehouse are often subject to poor treatment more due to negligence than ignorance. Battery manufacturers provide pretty extensive literature for maintenance of batteries. However, some of it seems to be so overthe-top & silly that operators/ managers end up neglecting them. This negligence results in batteries lasting much lesser than they are supposed/ designed to. Badly maintained batteries result in:

Taking too long to charge– machine unavailable for a longer time in the absence of a spare battery

Too many change-overs even if there is a spare battery

Damage to the equipment on the long run

Acid leakage, heat generation and more fumes than usual which are bad for the charging area and the people

Takeaway No.4: Having an AMC for the batteries is the best solution in the long run, especially since it is an intermittent activity. While the AMC takes care of the batteries, it needs to be ensured that: charging area is well aerated with more air-changes

/ hour than the other areas of the warehouse (for fumes & heat generation) the floor is cleaned with running water (for acid

spills) These simple things will help ensure the life of the batteries and make the life of the operators a bit easier.

Sewage System / Drains Sewage systems, if well defined, hardly need attention and that is how it's supposed to be. But the truth is that they are the last priority on a

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designer's table. This generally leads to a myopic design with designers making generalizations on water usage or blindly sticking to locally stipulated norms.

It is important the design takes into account all the actual needs of the warehouse.It needs to be noted that the sewage system also needs to account for the occasional operation of the fire protection system.

Even if you have a good design accounting for all these, the designmight still have to handle unforeseen circumstances like failure, clogging, flooding of the municipal drainage/ sewage system, etc.

Any failure will lead to breeding of insects / pests, incidence of water-borne infections, unbearable stench, etc., immediately leading to an adverse impact on productivity.

Takeaway No.5: The sewage system, like most elements of the warehouse, needs to be inspected & declogged regularly. If not already provided, it is important to have a drain-off point where a suction pump can operate so that the waste can be temporarily disposed, especially when the downstream sewage is not working. Regular interaction with the authorities responsible for the municipal sewage might also prove helpful.

Conclusion As basic as they may be, neglecting these aspects in a warehouse could be eating into performance & related efficiencies from the inside and worse, they are not directly quantifiable. With companies vying for better service, faster delivery, quicker turnaround, etc. it is important for any warehouse manager to understand and address these minute details to improve their performance.

GURU SPEAK

PROCESS

KNOWLEDGE

OPINION

Employee Commitment-

An Imperative for Business Success Darryl Judd COO, Logistics Executive darrylj@logisticsexecutve.com

“

Who cares?� We have all heard this expression muttered by work colleagues at some point, usually in exasperation at that crucial moment were a decision is being made as to whether or not to take that extra initiative. I am sure that many of us have used this very phase ourselves at some point.

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This simple question can have a deeper impact and serve as a warning sign for every manager. For these simple words can be the first indication of a lack in employee commitment, which in itself could be an indication of a company on the way to becoming another business failure.

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HUMAN RESOURCE

The workplace is changing dramatically and demand for the quality of product and service is constant along with relentless change. Placing further emphasis on this pressure is today's global market place, where competitive is fierce and consumers increasingly more savvy. If organisations are to remain nimble and responsive, then employee commitment is crucial.

This reality is applicable to all organizations but is of particular importance to small and medium sized businesses.

It is therefore important to employ staff that will align positively with, not only their job skills, but also their new company culture. Not only as it exists in the present but the direction the company will take and the evolution it will go through internally to get there, to meet future demands. Staff who see themselves as go-getters and achievers, who can clearly identify the offering or the

HUMAN RESOURCE “what's in it for me” factor, will have a positive response when asked to go the extra mile when they ask themselves that crucial “who cares?” question.

Once the right workforce fit is in place, the message then comes back to how people are managed and how the message is deployed. In today's diverse workplaces employee behavior on the job is influenced directly - positively or negatively - by his or her immediate supervisor or manager. Positive influences are essential to strengthening employee commitment. Therefore the first step in building commitment is to improve the quality of management.

Much has been written recently about the need for improving the education and training of our workforce.As important as this is, at least equal emphasis must be given to improving the quality of management if business is to succeed in achieving greater employee commitment and thereby its profitability.

The benefits of having the besttrained workers using the most advanced technology can be nullified by the poor people management practices used by managers. In addition management skills need to be refreshed to meet changes in today's business conditions.

But are organisations taking heed of these this important avenue of success?

Logistics Executive Group's 2014 Employment Market repor t identifiedthat companies fall short of satisfying the training and development needs of employees with just 32.75 percent stating their organisation offers on-site

workshops and even fewer, 14.41 percent offering professional training. These figures contrast starkly with the 82.46 percent who say they would be interested in such a development opportunity if it were offered. Clearly more needs to be done in the area of management training if we are to adequately equip our frontline supervisors with the right management tools and skills to lead in this critical behavior.

There are two simple keys to success in today's environment of increasing competition and rapid change - an absolute passion for, and dedication to, excellence in customer service and the effective and enlightened management of our workforce. The latter encouragescommitment, which in turn leads to achieving the desired standards in customer service.

Without employee commitment, there can be no improvement in any area of business activity. In the absence of good management, employees will simply treat their work, as a 9 to 5 routine without any desire to accomplish any more than is necessary to remain employed. It does not take many uncommitted employees to prevent a business from prospering and thereby ceding a big advantage to its competitors.

To succeed in the face of increasing competition, a business needs improved productivity at all levels.

This requires the enthusiastic commitment of all employees, which can only be achieved through better management practices. To be effective, the skills of good people management must be installed in an organization so they become part of its culture. In this way there will be consistency from the top down to the most junior employee.And it

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starts with establishing a commitment to ourselves.

Establishing Commitment It is crucial as employers to do everything we can to foster to nurture the extent to which the employee is committed and aligned with the goals of our organization.

Employee commitment matures over time. Finding the right people who will fit the culture of an organization, become committed to their jobs, and routinely “go the extra mile” is crucial to developing a committed workforce. Providing a solid welcome, a formal orientation, and necessary training is essential for getting employees off to a good start and sets the tone for the rest of the relationship. The first three months are critical in building employee commitment and creating a foundation for sustained employee productivity. It is a time to educate the employee about the organization, its culture, and key expectations.

Aligning Commitment and Responsibility As the employee progresses through his or her tenure, the relationship between the employee and the employer needs to mature. We as employers need to create an environment in which employees can feel as if the goals of the organization are aligned with their own personal goals. Self-direction and a sense of responsibility are critical. At this stage, employees should be able to see the importance of their roles and to sense our commitment to quality. We all must work to encourage employees' growth, development, and commitment and to recognize each

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HUMAN RESOURCE individual contribution. An effective workforce is necessarily one in which co-workers are able to work together as a team. Effective communication is one of the most important ways we as providers can foster a cultureof commitment in the workplace. This is particularly important due to the diversity of today's “team� which may comprise of staff who work from home or from different geographical locations and under very different conditions. There needs to be a focus on what everyone has in common, what they bring to the team and not on the differences, to enable positive cohesion.

A Culture Of Effectiveness Once the right people are on board, leaders need to build a culture of effectiveness — one that aligns with both satisfaction and commitment. When we understand this we can begin to see where we stand in providing a workplace that is satisfying, fosters success, and ultimately impacts the quality of care and service being delivered within our organization.

Businesses need good people to succeed. Failure on the part of owners or senior leaders to ensure their managers and supervisors are trained and function effectively can lead to the loss of valued employees because the best employees are attracted to employers who place a premium on good people management.

Earlier we talked about the keys to success and touched on customer service. Customer service cannot be achieved without dedicated and committed employees. By commitment they need to be able to self-direct and actualize in line with company goals. It is staff at the cold face, the order clerks, customer service representatives, receptionists, and drivers who interact most with the public. They relate in a manner consistent with how they themselves are managed. Hence the direct link between effective management of employees and their level of commitment to the organization and the standard of customer service.

Extraordinary results can be achieved by ordinary people once there is an alignment and shared commitment achieved. Managing a business today is difficult enough without forfeiting a competitive advantage by lack of attention to its most valuable asset - its people.

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