SCMPro November 2013 Edition

SCMPr

Supply Chain Management Professional

n BENCHMARK n Knowledge n REPORT n WHITEPAPER n HUMAN RESOURCE November 2013 Vol. 1—No. 10 `150

SCM and SME

Time to Tango Pg.xx

In This Issue benchmark Dr. Vaidy Jayaraman on India warehousing Industry.

Report PWC Report: ‘Transportation and Logistics 2030’ Page...34

Page...12

HR Why Candidate Engagement is Important?

Page...48

editorial

The Unbearable Burden of Stasis T Girish V S Executive Editor

he UN Climate Summit ended on 23rd November at Warsaw, Poland. A couple of major upsets were a part of the summit where Japan announced its decision go back on its carbon emissions goal of reducing greenhouse gas emissions 25% from 2005 levels by 2020. Now, Japan said, the goal for reduction is just 3.8%. Australia also disappointed when its new Prime Minster announced that he was introducing legislation that would repeal the carbon tax. So much for green concerns. Can we blame the logistics industry for being lax about green concerns when governments are so apathetic.

Meanwhile, during my interactions with a few transporters, one disturbing fact came up. While there is lot of chatter about driver welfare, things on the ground do not change. Drivers are still a overworked lot.

That set us thinking – what can be done for the drivers. If you have any suggestions, please write in to us. We would like to hear from you. And we will take it up at all forum.

We seem to rowing a tied boat. Time to change.

For this edition of SCMPro, we decided to look at the SME sector and the role of SCM in the SME sector. Something that strikes me is the lack of technology penetration in the supply chain sector. We hear the term return on investment or ROI a lot. But nobody seem to talk about CONI – the cost of not investing. Technology – and I do not talk of IT alone – can bring in the efficiencies in supply chain. Technology can enable the partners in a supply chain to collaborate for profits. Concepts like vendor managed inventory and demand driven supply chain are fast emerging to be a fact of life. Our biggest contribution to the nation will be providing it with a couple of percentage savings in the supply chain costs. And technology can show us how to squeeze efficiencies from our supply chains. Are we up to the challenge?

We are glad that some of our readers are coming up with suggestions and we will seriously consider implement what we can. We need your support to make this happen. Please continue to support us. We promise to make this the preferred platform for the SCM industry.

Happy Reading!

Executive Editor

SCMPr

November 2013

3

Millions of Dollars are lost due to error in planning and forecasting. Dr. Rakesh Singh discuss relevance of forecasting

10 benchmark >>

Dr. Vaidyanathan Jayaram on Indian Warehousing Industry in comparison with more developed economies and a way forward.

12 Academic Advocacy >>

34 PWC Report >>

A Business paper discussing frameworks and tools for improved Supply Chain.

Report on “Transportation and

November 2013

Contents

06 Insight >>

4 SCMPr

November 2013

logistics 2030�. by PWC

18 lead story

SCMPr

Executive Publisher Jayaram Nair jayaram.nair@scmp.in EDITORIAL Executive Editor Girish V S girish.vs@scmp.in

Consultant Editor Dr. Rakesh Singh rakesh.singh@scmp.in Creative & Production Shivasankaran Pillai shiva.pillai@scmp.in Advertising Soney Mathew soney.mathew@scmp.in

Rashid Iqbal-Director rashid.iqbal@scmp.in

SCMPro explores in details Supply Chain Management role for SME

42 Column >> Prof. Venkatesh on Changing Paradigm of E-Commerce Environment in India

44 ISCM Whitepaper >> Whitepaper by Institute of Supply Chain Management (ISCM) on Skill Deficit in Logistics Industry.

48 Human resource >> Darryl Judd on importance of employee engagement for not only to to retain good resource but also for growth.

Media Group 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai -400069 INDIA.

Printed and published by Jayaram Nair on behalf of B2B Media Group. Printed at SAP Print Solutions Pvt. Ltd, 28 Laxmi Ind. Estate, Lower Parel, Mumbai - 400 705, India and published at 211/1, Sona Udyog, Parshi Panchayat Rd., Andheri (E), Mumbai - 400069.

No part of this publication may be reproduced or transmitted in any form or by any means including photocopying or scanning without the prior permission of the publishers. Such written permission must also be obtained from the publisher before any part of the publication is stored in a retrieval system of any nature. No liabilities can be accepted for inaccuracies of any description, although the publishers would be pleased to receive amendments for possible inclusion in future editions. Opinions reflected in the publication are those of the writers. The publisher assumes no responsibilities for return of unsolicited material or material lost or damaged in transit. All correspondence should be addressed to B2B Media Group. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.

ANNUAL SUBSCRIPTION RATE INDIA: `1,800/-

Academic Partner

SCMPr

November 2013

5

insight

Pragmatic Forecasting One of the prime reasons for inefficiencies of the supply chain is inaccurate forecasting.

Forecasting is defined as the use of historic data to determine the direction of future trends.

Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them. Forecasting also provides an important benchmark for firms which have a long-term perspective of operations. Dr. Rakesh Singh focuses on the relevance of forecasting.

F

Dr. Rakesh Singh Director, Durgadevi Saraf Institute of Management Studies and Chairman Institute of Supply Chain Management.

6 SCMPr

November 2013

ew functions of management have received more attention in the last ten years than forecasting.

Robert G. Brown’s pioneering book recognized that analytical techniques of proven capability in quality and process control might be equally successful in determining inventory levels and predicting product demand. This revolutionary idea was made practical by the widespread use of the computer. It suddenly became practical to review 10,000 possible products, perform complex calculations on each, and obtain meaningful results to be used in making improved management decisions—within a few hours. Equally important, all 10,000 items can be reviewed continuously and an exception report requiring management action can be provided on all out-of-control conditions.

Forecasting has reached the stage at which it can be an effectively performed management function. It is unfortunate that in some companies the forecasting efforts are less than satisfactory. Let us review the most common forecasting errors.

Misdirected goals Profit should be the reward of thoughtful and effective sales forecasting. Some businesses direct their primary activities toward maximizing customer sales and assume this will provide maximum profits. Overemphasizing sales can result in many special sales, excessive inven¬tories, inefficient production, and poor customer service. Return on invest¬ment is the most valid yardstick for management effort. Sales, manufac¬turing, and finance should work together to achieve the maximum possible return. Excessive variety of products and poor pricing simply to achieve an increased sales volume are rarely justified.

Neglect of the function Too often forecasting is only a part-time function performed by executives who have other responsibilities. A professional forecasting analyst has many skills that are rarely possessed by typical production, materials, finance, or marketing executives. Since planning is based upon forecasts, millions of dollars could be lost

insight because of possible, planning errors that could have been avoided. When forecasting is per¬formed part-time, it is common to limit the activity merely to establishing sales quotas, and estimating total sales by product group. Production and inventory management decisions will then be based entirely upon the judgment of line managers. The mistakes made are often serious.

One company actually limits its forecast to sales dollars /product line. Production must guess on what products the sales will occur.

Organization To coordinate sales, finance, and manufacturing to achieve operating objectives, it is necessary to “explode” the sales forecast into functional subforecasts. A typical requirements list for these subforecasts is: n Finance: gross profit, capital expenditures, budgetary control of expenditures, and cash flow. n M anufacturing: equipment, manpower, facilities, and inventory. n Sales: quotas, manpower, advertising and promotion, and perform¬ance measurement.

The forecasts called for in this example are only a few of many possibilities. The point is that to be more than meaningless statistics, all forecasts must be objective-oriented.

Each must satisfy a specific business need, and its result should be either to limit further the area of executive judgment or to provide a factual basis for improving the quality of management decisions.

To achieve the desired objectives, the full-time forecasting analyst must work very closely with line management. Typical combined tasks might be determining

It is hoped that the reader will acquire sufficient knowledge to initiate an effective forecasting program in his company that will reduce planning errors, significantly reduce sales and operating expense 8 SCMPr

November 2013

forecast objectives, considering available data sources, and identifying out-of-control conditions. Discussion should also include techniques for effective evaluation and control.

Continuous review Many companies look upon forecasting as a task to perform and put aside until the next month, quarter, or year.

Business conditions, however, are far from static. When 10,000 possible products are forecast on a monthly basis, it is likely that within the month at least several hundred will have orders that will exceed predicted requirements by a sufficient amount to require a re-evaluation of the production schedule and inventory control rules. The computer system will provide the line managers with a daily report on out-of-control conditions requiring im¬mediate action.

Super-scientific techniques There is a tendency to view the new mathe¬matical techniques as infallible.

Part of the problem is that the people who develop them seem to delight in using terms like alphas, exponential smoothing, K factors, correlation coefficient, and least squares. Such jargon both impresses and confuses the executive, with the predictable result that he does not expect to understand the applications of the techniques. This attitude is unfortunate and inaccurate, for it is necessary to understand a technique before deciding when and when not to apply it. The fore¬casting approach used by a business should utilize both judgment and statistics.

By now it should be clear that much of the difficulty that is encountered by management in obtaining the necessary and timely forecasts is based upon incomplete knowledge of available capabilities. It is hoped that the reader will acquire sufficient knowledge to initiate an effective forecasting program in his company that will reduce planning errors, significantly reduce sales and operating expense, and increase the return on investment. Such a forecast will be “pragmatic,” because it will work.

n BENCHMARK

n Knowledge

n REPORT

n WHITEPAPER

n HUMAN RESOURCE

Warehousing sector in India

Comparison with the Global Economy?

W

ay back in the mid1990’s, still recall working on a consulting project for a major pharmaceutical chain, we were asked to go and have a look at their network in terms of factories and warehouses. The VP purchases kept using the term logistics. The term supply chain did not even exist at that time. The term became popular somewhere in the late ‘90s.

The traditional view of warehousing was viewed as a storage point. The contemporary view of warehousing function which gave birth to how to mix, how to bundle, how to use a storage point, before you ship products from your warehouses to your major customer zones.

10 SCMPr

November 2013

Indian warehousing industry has come a long way but there is so much to achieve yet. What are the lessons to be learnt from developed economies such as USA to fast track the growth here? What are the growth impediments in the sector and the ways to over come them?

SCM Pro brings you an extract from the key note address of Dr. Vaidyanathan Jayaraman, Professor of Supply Chain Operations, School of Business Administration, University of Miami, FL, USA., at the India Warehousing & Cold Storage Conference at Chennai on the 8th November .

In my view, warehousing was viewed as a necessary evil to coordinate supply and demand. And what has happened over the last years is that more and more companies are really taking this shift from being a supply driven supply chain to a demand driven supply chain.

There has been a major shift along this concept that customers are going to demand, and whatever they are demanding, the company has to fulfil. Today, supply does not drive demand, but demand drives supply.

Having said that, you have to maintain some sort of a balance. In trying to maintain this balance, warehouse has moved from this passive storage space to a strategic assortment.

By the early 2000, some retailers

started shifting their strategy to use their warehouses to be a demand driven supply chain, because the customers were demanding highly customised products. And since they were moving to a customised delivery mode, they could not stock too many of the products, as they did not know what the customers wanted. A classic example is Dell. Dell does not manufacture any product. Dell is in the business of ATO - Assembled To Order or BTO - Built To Order. If you are building to order and you claim to offer a highly customised laptop, you cannot afford to stock them. many of them have a very short life cycle. Dell used their warehousing strategy in a very interesting manner. If the customer places an

benchmark order for a customised laptop, that information travels to the Dell head office and to the Dell suppliers, who are located within a 5 mile radius of their distribution centre. The entire supply chain - Tier I, Tier 2 and even Tier 3 suppliers had a visibility into the customers order.

Dell used the distribution centre to pull in all those components that the customers are demanding -mind you customers do not demand components. Customers demand laptops which contain those components which Dell will use to put together its laptop. This entire paradigm shift in warehouses - from being a passive storage location to a strategic asset has happened in the past 15 years or so. This has pushed the warehouse, and with it the supply chain as a board room topic. It is no longer the back office - something that has been taken for granted. There was a survey

by Deloitte around three years ago, among over 500 managers across multiple industries in Europe and US. A couple of interesting takeaways from that survey were - clearly over 92% of the managers surveyed believed that supply chain was going to be a board room topic going forward. And interestingly, only 2% of those 500 managers surveyed believed they had a world class supply chain. The impression we get is that yes, supply chain, and that includes warehouses is critical, but we are nowhere near being world class.

And what do I see as the future of warehouse? More than the shift to being a strategic asset, I believe that because you have to respond to customer demand, because more and more companies are now becoming demand driven, it has pushed warehousing to the level where you have to understand that not only have you to practice just in time, you also have to look at this whole idea of assortment. Can I bring in bulk and then break it down in my warehouse? Can I use my cross dock?

Not as a place to store products, but to bring in multiple products In Wal-Marts cross docks, 24X7 supplies come in from multiple suppliers. Their cross dock have conveyors whose length is 15 KM. they receive all these shipments in their cross dock, get on to the conveyor and reach their central area where they get into assortment. It is no longer about shipping what you have, but identifying exactly what the customer is going to demand.

With their cross dock they are able to meet supply with demand. It is not about blindly sending out shipments, but sending out what those outlets need. And those outlets needs are based on customer demand.

There are two benefits from doing this. One is clearly the economic benefit. They are going to use these points for consolidation, sorting, seasonal storage. The second is reverse logistics.

We have been doing reverse logistics in India for years. I have grown up watching people recycling paper, plastic, and bottles. I still recall my mother exchanging 15 old saris for a small vessel. The small container might be worth fifty rupees maximum. It is not the money. It is the habit. It is in our DNA to recycle.

Reverse logistics in India is alive. It is only that we do not have a formal way to do this. Companies in US are talking about spot stocking, full life stocking. They are looking at ways to treat the warehouse as a value added component. Not a necessary evil. That is how the amount of time spent by the product in the cross dock can be minimized.

To me warehousing is transportation at zero KM per hour. To me warehouse is a very strategic element of the supply chain. And we need to design this depending on the nature of transactions and materials involved.

One of the things I find amazing is that managers are adamant about

his data accuracy. And it is not about physically counting what you receive.

One of the aspects the managers focus is on “How accurate is my data?� Another thing I found very interesting is today more senior managers are paying close attention to the supply chain because they realize this is crucial for their sustainability of the business.

If a customer wants products 1, 2, 5 and 7, I am going to use my warehouse and cross docks to bundle these products and ship them just in time.

It is about shipping exactly what the customer wants. Because I can use my warehouse to bundle products and match demand with supply.

The next big step is automation. This goes back to 1970. Sam Walton, the founder of Wal-mart realized the power of automation.

He invested in having his own satellite. He realized that if he could have real time visibility of the flow of products through his warehouses and cross docks, in the long run it is going to pay off. The concept of EDI - Electronic Data Interchange originated from Wal-Mart.

We need to think about our employees who have to work 8 to 10 hours in those conditions. We need to make sure our employees are working in the proper conditions.

Poor working conditions reduce the efficiency of the workers.

The other critical issue we need to think about is when do we centralize and when do we de-centralize.

We need to understand when does risk pooling - getting the products to a centralized warehouse succeed.

We need to decide if we have to understand the local needs, whether a decentralized mode would be preferable. This idea of understanding a centralized distribution strategy versus a decentralized strategy is something we need to master.

I believe that from a strategic perspective, these are some of the issues we need to address. And these are the issues the west is grappling with.

SCMPr

November 2013

11

n BENCHMARK

n Knowledge

n REPORT

n WHITEPAPER

n HUMAN RESOURCE

A Framework for

Supply Chain Design

By Philip Fronia, Felix S. Wriggers and Peter Nyhuis Institute of Production Systems and Logistics, Leibniz University of Hannover, Germany.

12 SCMPr

November 2013

Academic Advocacy

The choice of reference processes during the design phase is of utmost importance for a supply chains’ overall performance. Nonetheless practical experience gained in consulting projects provides numerous examples of unaligned processes. Thus the research project to be presented in this paper is aimed at establishing an easy to use framework for aiding decision makers faced with this problem and at providing a solution for this classical optimization problem in supply chain management. SCM Pro brings you edited excerpts from the paper.

S

ince the early 1990s increasing importance has been attributed to the concepts of supply chain design and supply chain management in manufacturing practice and research. Main reason is the necessity to maintain and increase the competitiveness in a globally challenging environment. Thereafter a lot of frameworks and tools for improving a Supply Chain have been discussed in business literature.

In this paper, the authors first introduce the Supply Chain Operations Reference Model, otherwise known as the SCOR model. Based on identified limits and weaknesses the authors then go on to explain how the SCOR model can be expanded further increasing its proven practical relevance. Using the example of the Source process the procedure and the resulting extensions to SCOR will be described in detail. In doing so it will become clear how a supply chain can be designed with the assistance of this extended model. In conclusion, a suitable Logistic Performance Measures System (LPMS) currently being developed at the Institute of Production Systems and Logistics (IFA) will be introduced.

The LPMS has to be a fundamental component of the framework which is to be developed.

SCOR Model The Supply Chain Operations Reference Model has established itself internationally in research as well in the industrial setting as a crossindustry standard for depicting supply chain management processes. In 1996, the Supply Chain Council (SCC), a non-profit organization whose membership currently comprises over 1000 enterprises, first introduced the SCOR model. Since then the model, which is used for describing supply chains and their inherent business processes, has been developed continually.

The SCOR model is arranged hierarchically and defines the supply chain core management processes Source, Make, Deliver and Return in three different levels of detail as well as an overall process referred to as Plan. In conjunction with concepts of process engineering, benchmarking, and best practice analyses the standard process definitions form a cross-functional framework for Supply Chain Management. Homogenous, comparable and assessable process models of supply chains from the supplier’s supplier to the customer’s customer can thus be created.

SCMPr

November 2013

13

13

Academic Advocacy The five primary management text, the process categories Makeprocesses are: to-Stock, Make-to-Order and 1. Plan, which contains all plan- Engineer-to-Order are differentining processes for coordinating the ated on the Level 2 of the SCOR supply and aggregated demand of model, the so-called Configurathe entire supply chain, e.g., the tion Level. Moreover, since version planning and distribution of re- 6.0 of the SCOR model, the basic The five primary management processes sources and capacities,are: management process Deliver also 1. Plan, which contains all planning processes coordinating the Retail supplyProdand 2. Source, which includes the forcontains the category aggregated demand of the entire supply chain, e.g., uct. the planning andcombination distribution of of procurement (or sourcing) processThrough the resources and capacities, es for acquiring goods and services core processes and process cat2. Source, which includes procurement (ororsourcing) processes acquiring goods in orderthe to satisfy a planned cur- egories as wellfor their subsequent seand services in rent order to satisfy planned or current as SCOR well model as the demand as well aas the managequentialdemand linking, the management of supply sources, ment of supply sources, supports the modelling of various 3. Make, which comprises the planning and execution processes transforming the 3. Make, which comprises the of supply chain for configurations.

Each supplied goods and servicesand intoexecution the required output, of these configurations is usually planning of proc4. Deliver, which describes processes forthesupplying the customers the finished esses forthetransforming sup- characterized by with a process categoproducts and services including the accompanying processes of managing stores, plied goods and services into the ry. For example, a Make-to-Stock orders and transport, and required output, supply chain configuration can 5. Return, which consists of the processes for handling the return of defective products, maintenance cases and surplus stock to suppliers or through customers.

Scope of SCOR

4. Deliver, which describes the be built from the core processes processes for supplying the cusMake andthe Deliver, In order to generate a differentiated modelling of the Source, processes with help which of the tomers with the finished products are in the basic Make-to-Stock SCOR model, it is essential to clearly distinguish the five primary management processes and product services including the accom-logic. form.

3 of the the process SCOR along the lines of the related execution In On thisLevel context, panying processes of managing model, the Process Element Level, categories Make-to-Stock, Make-to-Order and Engineer-to-Order are differentiated on stores, orders and transport, and the process categories are elabothe Level 2 of the SCOR model, the so-called Configuration Level. Moreover, since Return,the which consists of the process rated in Deliver more detail version 6.0 of the SCOR5.model, basic management also through containsthe the processes for handling the return individual process elements. category Retail Product. Through the combination of core processes and process of defective products, maintenance In SCOR additionmodel to the process refercategories as well their subsequent sequential linking, the supports the cases and surplus stock to suppliers ence model, the SCOR model also modelling of various supply chain configurations. Each of these configurations is usually throughcategory. customers.For example, provides standard terminology and characterized by a or process a Make-to-Stock supply chain In order to generate a differenmetrics for benchmarking the supconfiguration can be built from the core processes Source, Make and Deliver, which are tiated modelling the 3processes ply chain.

Onthe each level, these key in the basic Make-to-Stock form. On of Level of the SCOR model, Process Element with the help of the SCOR model, figures are allotted to five PerformLevel, the process categories are elaborated in more detail through the individual process it is essential to clearly distinguish ance Attributes, defined by the elements. the five primary management proc- SCC as follows: esses along the lines of the product 1. Reliability. The performance related execution logic. In this con- of the supply chain in delivering: 14 SCMPr

November 2013

the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer.

2. Responsiveness. The speed at which a supply chain provides products to the customer.

3. Agility. The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.

4. Costs. The costs associated with operating the supply chain.

5. Assets. The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.

The research conducted up to now for this project indicates that a functioning Logistic Performance Measurement System (LPMS), suitable to the reference processes, has to be a fundamental component of the framework which is to be developed. Currently, there are already a multitude of target systems for production companies. These have helped logistics managers develop an awareness of the aspects of logistic performance that their customers value most highly. Many companies have begun to systematically and continuously monitor and control these strategic Logistic Performance Indicators (LPIs). However, indications of the LPMSs’ and LPIs’ shortcomings are provided in literature reviews such as that undertaken for example by Shepherd and Gßnter: n Despite the wide-spread application of logistic reference models such as the SCOR model, universally-accepted definitions of LPIs do not seem to exist or, as in the case of SCOR, are still under development. n The majority of the proposed LPMSs are primarily oriented to-

factor. In order to counteract these shortcomings, the Institute of Production Systems and Logistics has formulated a comprehensive LPMS research program. The institute Academic Advocacy endeavours to eliminate the aforementioned shortcomings of the LPMSs currently available by providing more complete definitions of the logistic systems and the LPIs used by manufacturing companies.

Standard Process Models: An Enhancement of the SCOR Model

wards a process perspective of logisn Manufacturing companies service levels and may therefore tic systems. Thus, the performance are not aware of the LPIs that are be wary to make use of this parThe entire paper can be found at: measurement systems consider relevant in their particular com- ticular LPI. http://www.engopt.org/nukleo/pdfs/0181_a_framework_for_supply_chain_design.pdf important systemic perspectives of petitive environment. As a conIn conclusion, many manufaclogistics systems as secondary. As a sequence, there are gaps in the turing companies do not have preconsequence, with the exception definitions of logistic LPIs that the cise and relevant information availof processes, the performances of companies use. able about the current levels of their logistic system elements are being n Lower-level entities within own logistic performance. Thus, neglected. the logistic systems – e.g., sub- deficits in logistic performance ren Often the relevant features of processes or single work systems main undetected hindering its use the LPIs (e.g., system design phase – struggle to contribute towards as a competitive factor. In order to vs. system operation phase) are fulfilling the logistic objectives that counteract these shortcomings, the not well-defined and insufficient have been defined for higher-level Institute of Production Systems and attempts are made to relate differ- entities, e g., the entire company or Logistics has formulated a compreent features to each other. Further- highlevel logistic processes. A lack hensive LPMS research program. more, the formal purpose of LPIs of LPI decomposition or decompo- The institute endeavours to elimiremains unclear. sition incoherencies are among the nate the aforementioned shortcomThe Institute of Production reasons for this deficiency. ings of the LPMSs currently availSystems and Logistics is regularly n Due to varying formal defini- able by providing more complete engaged in quantitative analyses of tions of logistic performance indi- definitions of the logistic systems the logistic performance of manu- cators, logistic practitioners are of- and the LPIs used by manufacturfacturing companies. The experi- ten unsure about the exact aspects ing companies. ence gained from these projects of logistic performance the indicahighlights additional deficits of the tors represent. For example, the The entire paper can be found at: http:// application of LPMSs in logistics majority of logistic managers are www.engopt.org/nukleo/pdfs/0181_a_ management practice. Prominent unlikely to be able to differentiate framework_for_supply_chain_design. examples are: between alpha, beta and gamma pdf 16 SCMPr

November 2013

Warehouse

Warehouse Compendium 2014

m u i d n e p m Co

2014

ner Academic Part Published by

SCMPr

Book your copy Now! and Avail an Early Bird Discount of

Launch Date: January 2014 Cover Price: `750/-, (Early bird price: `450/-)

40%

Warehouse Compendium by SCMPro is a resourceful informative handbook with well researched articles on various aspects of warehousing & inventory management.

With expert columns, best practices, Case studies and whitepapers ‘Warehouse Compendium’ is a must have reference handbook for Logistic & Supply Chain Professionals, Supply Chain Students and the industry stake holders.

Payment should be by cheque/ DDdrawn in favour of B2B Media Group and send it to:

B2B Media Group, 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai-400 069.

Tel: + 91 22 60020121 / 122,

For corporate and bulk booking*, please mail your details to soney.mathew@scmp.in *Special Discount for Bulk booking available.

lead story Lead story

Exploring 18 SCMPr

November 2013

lead story

SMe’s are the flavor of the season. There is a newfound love for the SME sector. A sector which generates 40% of exports and 40% of the manufactured output is sadly neglected. Girish V.S. discuss Supply Chain Management role for SME Sector.

A

cross the spectrum, the SME has very little clout in the value chain. Their lack of resources and skills makes them some of the most inefficient and costly part of the supply chain. We at SCM Pro realized that the time has come for India to harness the potential of its SME sector. And since we look at the supply chain side of business, we thought it fit to explore the role of supply chain management in SMEs. Supply chain management integrates industry partners, from the supplier to the end user, in order to maximize profit and efficiency throughout the chain.

To remain competitive, enterprises need to adopt various value added approaches. Use of technology, sourcing strategies and buyer supplier relationships are among several approaches that help firms remain competitive against local and global competition. The role of small and medium-sized enterprises (SMEs) has been neglected in the supply chain. The opportunity to develop innovative and value added services and/or products by leveraging modern supply chain concepts can generate significant value for SME’s. By integrating SMEs in the supply chain, barriers to internalization and competitiveness can be eliminated and it can in turn pave way for collaboration among supply chain partners.

We start with examining the role of supply chain management in SME in “SCM and SME – Time to Tango.” In a survival of the fittest scenario, the SME will have to adopt better SCM processes. If nothing else, the finances freed up from lower inventory alone should help the SME owner adopt better supply chain practices. If India has to continue to develop, if India has to provide jobs for an estimated 20 million youth a year,

and if India has to gain competitive advantage, supply chain management practices need to be improved.

For the next article, we focused on the role of Supply Chain Planning in “Supply Chain Planning in SMEs”. Small and medium sized enterprises have limited power in the supply chain and limited resources to invest in technology systems that will help them compete in the markets. This makes it difficult for SMEs to cope with the changing customer preferences such as mass customization which puts higher demands on the SMEs ability to flexibly change its production as per customer demand.

If SMEs have to be competitive, they need to harness the power of IT. The next article “IT in SME Supply Chains” explores this aspect. The complete supply chain in any organization covers sourcing, intra logistics, distribution and reverses logistics. For this chain to perform optimally, a series of information exchanges among the various stakeholders is vital. The conventional process of information gathering and dissemination is inadequate in these “business at the speed of thought” times. The need of the hour is IT enabled systems.

We move on to the concluding piece in “Supply Chain Risk – The SME Story”. Supply Chain Risk Management is slowly emerging as a boardroom topic.

The globalization of supply chains, and the necessity to move goods from one part of the globe to another makes the supply chain vulnerable to disruptions and delays. Some of them are acts of God. But a disturbingly large number of them are due to human errors.

And this places a huge pressure on SMEs to put their act in place to meet disruptions.

Happy reading!

the SME SCMPr

November 2013

19

lead story

SCM and SME

Time to Tango

SMEs are a vital cog in the economy. They provide 40% of the industrial output and contribute a major chunk of the exports. Across the world, firms are waking up to the benefits of an efficient supply chain. Girish V S takes a look at the scope of SCM in SMEs.

T

here has been a new awakening of interest in SMEs – both from a production point of view and employment opportunities they create. However, due to the current hyper competitive business landscape, where Indian SMEs have to contend with competition from India and also China, every little benefit the SMEs can squeeze out will add to their sustainability. Another factor that shapes the SME ecosystem is globalization – a globalized customer base which wants things better, faster and cheaper. The change of business models such as lower production cost, delivery of ever-increasing customer value, flexibility with superior service and 20 SCMPr

November 2013

the pervasive impact of information technology (Chandra and Kumar, 2000) are increasingly creating mammoth challenges for businesses to survive.

If we project the current business trends, in the not too distant future, competition will be between supply chains networks rather than individual firms. And SMEs need to master the art and science of running an efficient Supply Chain. Supply Chain Management is no more a back office job, tucked away in some remote corner. It is a complex and comprehensive approach of demand, sourcing, production, sales and distribution, and managing the inventory and distribution of the product to the customer, including the multiple

lead story intermediaries between the producer and the consumer It is a network that includes all parties involved directly or indirectly - the manufacturer, supplier, retailer and customer from the production to the delivery of products or services to ultimate customers both in upstream and downstream sides through physical distribution, flow of information and finances. From a service that offers a cheap way to transport a product from point A to point B, the post modern concept of supply chain management incorporates strategic differentiation, value enhancement, operational efficiency improvement, cost reduction, supply chain integration and collaboration, operational excellence and virtual supply chains.

However, SME’s have traditionally been laggards in the adoption of global best practices – be it in technology, HR or even supply chain management.

While their larger cousins have reaped the benefit of a more organized supply chain, SMEs are mostly unaware of the benefits of an integrated supply chain which can drive remarkable changes in their business processes and deliver better quality services, cost reduction and efficiency.

SCM and SME The main focus of SCM is to provide right product to the right customers at the right cost, right time, right quality and right quantity (Basher, 2010). Meanwhile, the short-term strategic goal of SCM is to reduce cycle time and inventory and thus increasing productivity, whereas the long-term goal is to enhance profits through market share and customer satisfaction (Tan, 2002). According to a study by Mohanty and Deshmukh, the quantified benefits of SCM include lower supply chain costs, improved productivity, inventory reduction, forecast accuracy, delivery performance, fulfilment cycle time and better fill rates.

A SME study in Merseyside, United Kingdom revealed the benefits of SCM to SMEs. The potential benefits include increased customer service and responsiveness, improved supply chain communication, risk reduction, reduced product development cycle time processes, reduction in duplication of inter-organizational processes, inventory reduction and improvement in electronic trading.

The structure and size of SMEs need to be understood in greater depth. A typical SME will have a few suppliers from whom he sources material and even fewer customers – often a few large customers from the majority of SME sales. This makes them vulnerable and dependent on their customers. To survive in such scenarios, the SME owner/manager will have collaborate with his customer and supplier. This close

collaboration offers him an easy access to technology, best practices and processes. The SME and the large firm form a symbiotic relationship, where the SME will gain technology and best practices, while giving away a chunk of their profits.

But they suffer from quite a few challenges. Shortage of skilled personnel is a major constraint in an SME. Another major challenge is finances – loans are difficult to come by, alternate sources of financing are horrendously expensive and the payment terms from their customers are most often loaded against them.

They lack the ability to drive a hard bargain and end up with payment terms that are not very attractive.

This combination of lack of finances and skills leads to a slower adoption of technology.

In such a scenario, how can supply chain management help the SME? The start of a SCM program will be with an accurate forecast of the product demand – if the SME can asses the demand for his products and services better, he will be able to plan his procurement and production in a cost effective way. The increased forecast accuracy in turn will lead to a lower inventory, which will free up precious finances. Improved forecast accuracy will also enable the SME to plan his supply chain activities better, leading to a lower total cost of the supply chain.

SMEs have been hit disproportionately hard by the severe squeeze in financing, but they have shown a resilience and flexibility that bodes well for their ability to capitalize on the innovation and evolution. Most SMEs have a huge dependence on their customers. To add to the problems, they are hemmed in by a tough external situation - such as changes in the economic cycle, policy shifts, geo-political developments, and changes in technology – all these have the potential to create problems for the SME. These barriers would impede the implementation of SCM in SMEs. There is a silver lining in the SME story – their flatter hierarchy – where most often the owner makes all the decisions – helps them be more responsive to their customers. This also helps them to adopt best practices easily. Once the owner is convinced, implementation will not be a difficult task.

In a survival of the fittest scenario, the SME will have to adopt better SCM processes. If nothing else, the finances freed up from lower inventory alone should help the SME owner adopt better supply chain practices. If India has to continue to develop, if India has to provide jobs for an estimated 20 million youth a year, and if India has to gain competitive advantage, supply chain management practices need to be improved.

SCMPr

November 2013

21

21

lead story

Supply Chain Planning in SMEs

Small and medium sized enterprises have limited power in the supply chain and limited resources to invest in technology systems that will help them compete in the markets. This makes it difficult for SMEs to cope with the changing customer preferences such as mass customization which puts higher demands on the SMEs ability to flexibly change its production as per customer demand. SCM Pro looks at the possible types of SCM measures to take when changing to demand driven production.

A

t a recent conference on warehousing, the keynote speaker spelt out the change in direction of the supply chain management approach. From a traditional supply driven supply chain, firms have to embrace a demand driven supply chain. Where customers increasingly demand customized products and firms have to meet the customer expectation. The nascent trend is towards a market of one – where the firm has to cater to the individual requirements of their customers. There 22 SCMPr

November 2013

is an increasing demand for customized products, higher quality standards, increased service quality, reduced delivery time and reduced price. This, together with globalization of the customer base and shorter product life cycles, is forcing companies to take action within several areas to compete on price and flexibility.

This calls for new investments in flexible production systems, increased use of outsourcing and optimized supply chain to achieve fast, cheap and

lead story timely flow of high quality products to customers.

One very crucial ingredient of the whole process is the supply chain planning. SME’s with their limited resources, skill sets and technology need to stretch themselves to fit into the emerging post modern business ecosystem.

Under the existing practices, each SME takes a decision to replenish their inventory based on their assumptions on the lead time to procure from their suppliers or from the next stocking point upstream.

Similarly, their production schedules are based on the customer demand perceived by them based on inputs from the players in the chain, or a forecast based on the historical demand for the product. This is an inefficient process and leads to losses from the supply chain. One of the reason for the high supply chain costs in India can be traced to this. One well-known example of sub-optimization is the bullwhip effect illustrated by Forrester (1961) in his Beer Game where a small change in the customers’ purchased quantity has a comprehensive influence throughout the supply chain.

To remain competitive, SMEs have to adopt various value addition processes. Technology, sourcing strategies and buyer supplier relationships are some of the approaches that help SMEs remain competitive against local and global competition. The role of SMEs has been neglected in the value chain. The chance to introduce innovative value added services and/or products by leveraging supply chain concepts can create significant value for SME’s.

One way to bring order into this madness is to implement supply chain planning process within the organization. Supply Chain Planning focuses on effective supply chain strategies for companies, with an emphasis on how to plan and integrate supply chain components into a coordinated system. Effective supply chain planning is based on equitable information exchange across the entire supply chain.

However, there are various obstacles for smooth information exchange among partners in a chain. For example, a source of conflict arises when companies need to share information, and they do not want to release commercially sensitive data. Typically, a large OEM will not share their production plans with their vendors – especially if they foresee a growth slowdown. This is primarily due to fears that the supplier will either increase costs or not accord the same care. Information asymmetry is a major issue in supply chain. This leads to an erosion of efficiency and an increase in costs.

Supply chain performance is limited by many factors. A well oiled supply chain requires collabora-

tion between various players. Absence of frameworks which could help to establish alliances among supply chain partners can significantly affect the supply chain performance. One of the factors that constrain the collaboration between entities in the supply chain is the lack of integrated information systems and electronic data interchange.

Another factor that can limit supply chain performance is the lack of trust inside and outside a company, compounded by the lack of tools to measure the effectiveness of a supply chain alliance. The traditional view of a supply chain was a selective number of equal partners in a straight forward struc-

In supply chain planning, all entities in the chain need to be aware of the end customer order.

This is key to efficient supply chain planning. If the manufacturer can pass on the customer order information to their suppliers, it will provide suppliers with a broader view of the supply chain customer wishes. ture. The supplier, manufacturer and customer are linked by a straight forward information flow. The supply chain plannig here is simple. But as the entities in the supply chain increase and the relationships go beyond Tier 1 to tier 2 and tier 3 suppliers, the information flows become complex. Now, the straight forward supply chain planning is replaced with a complex planning procedure based on daily balance between demand and supply within the company’s business network.

In supply chain planning, all entities in the chain need to be aware of the end customer order. This is key to efficient supply chain planning. If the manufacturer can pass on the customer order information to their suppliers, it will provide suppliers with a broader view of the supply chain customer wishes.

SCMPr

November 2013

23

23

lead story Every link in the chain receives information from the adjacent links and pass on the information to the next link. Naturally, this also means that the supplier should co-ordinate and/or synchronize planning according to supply chain needs (e.g. with regard to delivery time, quality and costs).

There are two ways in which an SME can handle complex supply chain systems – they can either reduce the complexity by focusing on a few entities in the chain or they can work with the complex chains using better information systems.

One way to reduce complexity of the supply chain is to develop supplier hubs. These hubs can reduce the number of entities in the supply chain facilitating the use of advanced planning systems. Supplier hubs provide logistic service by storing components delivered by suppliers and forward these to the respective manufacturers. For example, within the Scottish electronics industry it is most common

Supply chain planning framework Short Lead Times

Long Lead Times

Standard Parts

Vendor managed inventory

Electronic markets

Customer specificparts

Supplier hubs

Advanced planning systems

Source: Proceedings of The Fourth SMESME International Conference

Framework for SCP - Adopted from “Supply Chain Planning in Small and Medium Sized Enterprises” In the following a framework is proposed for the different supply chain planning. The framework is related to part price, lead time and degree of customisation. The intention is to establish a diversified framework, which combines the dimension of mass customisation and the dimension of supplier performance.

Standard parts, short lead times Parts are easy to acquire at many suppliers in the market. Lead time and cost are the major criteria for supplier choice. A solution can be Vendor Managed Inventory in which a preferred supplier keeps track of inventory levels.

Customer specific parts, short lead times Parts must be supplied quickly and customer specific. Lead time is still the major criteria for supplier choice. The degree of customisation and sales variation pays a major role and points towards supplier hubs.

Standard parts, long lead times The company can achieve standard parts at a large range of suppliers.

The choice for a supplier will basically be based on cost and quality. This point towards Electronic Markets.

Customer specific parts, long lead times Parts are expensive and customer specific. High quality and delivery precision are in focus. To achieve this and to reduce manufacturing costs both sales and planning information need to be exchanged often.

Long, medium and short term planning information must, with all their adaptations and changes, be exchanged on a frequent basis to fine-tune planning between manufacturer and supplier. More or less advanced planning systems would be the preferred selection.

24 SCMPr

November 2013

for Original Equipment Manufacturers (OEM) to receive their supplies from various first-tier suppliers by the use of supply hubs. These supply hubs inform suppliers of any component pulls so that stocks can be replenished.

Another innovation is vendor managed inventory.

In vendor managed inventory systems suppliers manage the stocks of their products at their customer’s premises. To support the supplier in managing the stock, the manufacturer provides them with sales information. For example, in the Netherlands some retailers aggregate sales information of outlets, split it up into sales information related to specific suppliers and send this information to the respective suppliers on an hourly basis. The supplier ca then plan his production based on this input.

Another interesting example of Vendor Managed Inventory is Bang & Olufsens’ “On-line Suppliers”.

B&O suppliers do not receive purchase orders, but instead are responsible for delivery of parts according to B&O’s needs. The “On-line Suppliers” are able to view stock levels and expected requirements directly from B&O’s information system.

With the introduction of the internet and mobile technology, electronic marketing has become a new option of doing business for SME companies. Examples like Snapdeal and Flipkart in India and Amazon or e-Bay in the US are typical electronic markets.

Alibaba in China is developing an exclusive mobile market. Electronic markets enable SMEs to integrate into larger networks and reduce system costs. The development of internet has enabled the manufacturer to directly send the engineering design to the SME’s systems and get it custom made.

Effective supply chain planning makes inventory available and visible among the chain partners, minimizes response time and optimizes inventory held throughout the chain. The exchange of real time information and simultaneous planning of production to order and production to stock, integrated with the planning of sales and purchasing has become essential.

SMEs need to embrace supply chain planning if they are to remain relevant.

ONE DAY WORKSHOP ON TOC APPLICATION In today’s competitive business environment, where meeting customer expectation, forecasting the market demand and reducing variability in the process are some of the main concerns of any supply chain professional.

TOC workshop from SCMPro, conducted by Goldratt consulting, India will take you through the Theory Of Constraint (TOC) approach to overcome the difficulty in realising the true potential benefits of supply chain.

30th January 2014 Venue: Sofitel, BKC, Mumbai

Eligibility: The delegates should be from the category of GM & above of supply chain, logistics, distribution, planning, production, sales & marketing.

Delegate Fees: Rs. 8000* + Service tax per delgate Register before 2nd January 2014 and and pay Rs. 6500/- + tax only.

Last date for Registration: 10 January 2014.

(Only limited seats available) * Includes Tea / Coffee, Snacks and Lunch

Registration Process: Please sent your requests with details to soney.mathew@scmp.in or call on 022 60020121 / 22 Payment Detail: Payment should be made by cheque/DD drawn in favour of “B2B Media Group” and sent it to B2B Media Group, 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai 400069

Agenda - Management Attention No. 1 Constraint of any organization - Business Game Exercise - PQ Problem - Introduction to TOC Concepts -

4 Pillars of TOC Five Focusing Steps T, I & OE Concepts of Flow

- TOC application for Production -

Types of Operations Core Conflict of Operations SDBR Solution How to deal with priorities?

- TOC application for Distribution with reference to After Mkt -

What is the current reality?

Moving closer to actual Demand Concept of Pull Distribution Setting Inventory Targets Priority Mechanism

- Case Studies

Organised by

SCMPr

Conducted by

lead story

26 SCMPr

November 2013

lead story

IT in SME Supply Chains The complete supply chain in any organization covers sourcing, intra logistics, distribution and reverse logistics. For this chain to perform optimally, a series of information exchanges among the various stakeholders is vital. The conventional process of information gathering and dissemination is inadequate in these “business at the speed of thought” times. Team SCM Pro takes a look at the role of IT in the supply chain of an SME.

M

anagers now realize that actions taken by one member of the chain can influence the profitability of all others in the chain. Increased globalization of markets and increasing international competition imply that firms in all nations will face similar, if not identical, competitive environments.

Innovations enabled by information technology (IT) are creating new ways for firms to manage Complex supply chain relationships. Large firms are already using IT to co-ordinate their entire supply chain - from procurement to production to sales and services and the reverse flow of good pat their use by date, and also to share information flows, including financial information along the entire supply chain. In fact, recent academic research defines supply chain management as “a digitally enabled inter-firm process capability.”

In the digital supply chain, the stake holders are linked through the flow of information as opposed to the traditional method of integration by ownership. This change has resulted in the shift from the physical process – warehousing, logistics, and inventory - linkage to information flow based integration. The information system includes data, process, resource, organization, analysis tools, methods, techniques and algorithms which concern Inventory, Facilities, Transportations, Cost, Prices, and Customers.

E-Supply Chain An e-supply chain is a supply chain that can be managed electronically, usually with Web or mobile technologies. SCM information systems use technology to more effectively manage supply chains. E-Supply Chain Management is the collaborative use of technology to improve the operations of supply chain activities as well as the management of supply chains, over the internet or mobile platforms. An e-supply chain is a potential gold mine for an SME. The business environment forces SMEs to improve the quality of their products and reduce their manufacturing costs. This makes e-supply chain a certain winner.

The potential E-Supply Chain Transactions could be: n Providing information across the supply chain. n Negotiating prices and contracts with customers and suppliers n Allowing customers to place orders n Allowing customers to track orders n Filling and delivering orders to customers n Receiving payment from customers SCMPr

November 2013

27

27

lead story

According a World Bank report, SMEs are Important n SMEs are the Engines of Growth n SME sector is the largest provider of employment in most countries,

especially of new jobs n SMEs are a major source of technological innovation and new products n SMEs are Essential for a Competitive and Efficient Market n SMEs are Critical for Poverty Reduction n SMEs Play a Particularly Important Role in Developing Countries.

Also, according this report, the status of SMEs in China is: n SMEs account for 99.9% of the total number of firms n SMEs provide 84% of total employment n SMEs account for 71% of total sales

supply chain using historical demand for forecasts.

The advantages of APS for SME’s is that, APS helps in cost savings and price reductions, reduction or elimination of the role of intermediaries, shortening supply chain response and transaction times, gain a wider presence and increased visibility for companies, greater choices and more information for customers, improved service as a result of instant accessibility to services, collection and analysis of enormous amounts of customer data and preferences, creation of virtual companies and provide a level playing field for small companies who wish to gain global access to markets, suppliers, and distribution channels.

IT and the SME The e-supply chain can enable the SME to reduce costs at the same time improve collaboration and service quality. Emerging technologies like cloud computing and the falling prices of bandwidth makes it possible for an SME to embrace the latest in technology at a fraction of the cost.

Advanced Planning and Scheduling Systems Today’s supply chain is multi layered, spread across geographies and complex. To effectively plan, monitor and control such a complex network, we need a set of information technology (IT) tools. These systems are called Advanced Planning and Scheduling Sys-

The operations of an SME are constrained by the lack of resources, managerial skills, finances and the ability to implement and use IT systems across their organization. However, competition and the squeeze on profits create a daunting challenge. As long as the SME looks at IT investment through the lens of cost reduction, they will find the ROI cannot be easily justified. As opposed to a ROI based approach, the investment in information systems should be looked at more as value enhancers–the question that needs to be asked is not how much will I save, but, what value added services can I provide to the network that will help me improve my competitive position in the supply chain.

According to Infoworld, Cloud Computing is a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. Cloud computing encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT’s existing capabilities. tems or APS. APS is used for information integration, inventory management, order fulfilment, delivery planning and coordination across the entire supply chain. APS focus on a very challenging issue in supply chains - the need to synchronize thousands of decisions at strategic, tactical and operational levels in the complex environment. Basically, APS are computer supported planning systems that put forward various functions of Supply Chain Management, including procurement, production, distribution and sales, at the strategic, tactical and operational planning levels.

The dynamic nature of today’s business makes long-range forecasting difficult. APS helps supply chain deal with demand uncertainty, forecasting, inventory reduction and optimized transportation costs.

APS use operational data to analyze material flows in 28 SCMPr

November 2013

Cloud Computing A typical user of cloud computing is the SME. Cloud computing enables the SME to deploy IT resources–hardware, software, storage and network on a pay per use model, allowing them to scale up the IT systems on their requirements increase.

Cloud computing allows SMEs to reduce the upfront infrastructure costs, and focus on projects that differentiate their businesses instead of infrastructure. Cloud computing allows enterprises to get their applications up and running faster, with improved manageability and less maintenance, and enables IT to more rapidly adjust resources to meet fluctuating and unpredictable business demand–essentially putting the power of advanced computing in the hands of even the smallest player.

lead story

Supply Chain Risk

Supply Chain Risk Management is slowly emerging as a boardroom topic.

The globalization of supply chains, and the necessity to move goods from one part of the globe to another makes the supply chain vulnerable to disruptions and delays. Some of them are acts of God. But a disturbingly large number of them are due to human errors. Girish V S takes a look at the Supply Chain from the SME perspective.

30 SCMPr

November 2013

lead story

A

ny firm–large or small has to have a supply chain risk mitigation plan in place, or risk disruptions of their product availability. When business velocity increases, customers expect the right product, at the right place, at the right time, at the right price and the right quality.

With so many rights, there is n scope for a wrong.

The larger players will have the ability to survive supply chain disruptions and delays. The SME, on the other hand cannot afford loss of business due to delays and disruptions. The SMEs that passively accept risk of Supply Chain disruptions without planning for and anticipating such disruptions leave themselves vulnerable to significant financial loss and in some cases bankruptcy. The need of the hour is a pro-active approach to risk management that will help the SME remain a viable entity.

Firms need to develop a simple framework for managing supply chain risks. A complex framework may look good on paper or when the consultant speaks about it. But unless the framework can be implemented, it is of no use. A simple framework for managing supply chain risks will include: 1. Identification of the source of the risk – for example, it can be as simple a process as non availability of loading supervisors when goods are dispatched.

This may result in the products sent to the wrong address. This will mean delays and additional costs in re-routing the product to the right address. By far this is the most important part in the SCM risk management process. This may sound easy as a first step. But the process of just listing the potential threats to the supply chain will reveal how difficult the exercise is. Most of the disruptions may seem like an act of god. However, the SME needs to understand the implications of this and keep both the customer and their suppliers aware of the consequences.

These threats can be as severe as an earthquake or flood or as common as loss of key equipment, operational errors, accidents, cargo losses and quality issues.

2. Classifying and Assessing the risk to the supply chain – The next logical step will be to identify the impact of these risks to the SME. As a starting point, the risks need to be classified as per the A simple way to classify the risk events

would be along the four quadrants – high risk- high impact, High risk – low impact, low risk –high impact and low risk low impact. A simple representation of this can be as given. This classification will allow the supply chain manager to accurately assess the SME’s vulnerability to such supply chain disruptions. This will guide the manager in how the organization should plan for specific supply chain risks.

3. Developing a risk mitigation plan – Once the risks are identified and the possible damages identified, the next step will be to develop a risk mitigation plan. The SME looks at the possible risk scenarios and plans actively to lessen the impact of the organization to these risks. This response is the vital link in the risk management process.

The classic case for risk preparedness is the different responses of Nokia and Ericsson to the supply chain disruption of their radio‐frequency chips supply because of a fire in one of their common supplier Phillips Electronics early 2000. Nokia sent a team of 30 people to work with the supplier and thereby ensuring its operations were not disrupted. Ericsson on the other hand did not make a serious effort to maintain its supply base resulting in a US$ 400 Million loss.

Nokia that year increased its market share by 42%.

Poor planning led to severe losses and also loss of customers.

4. Developing a corrective action plan- Once the risk event happens, the firm has to quickly respond to

November 31 31 Pr 3. Developing a risk mitigation plan – Once the risks areSCM identified and2013 the possible damages identified, the next step will be to develop a risk mitigation plan. The

lead story the situation and ensure the disruption is minimized.

However, post the event, the firm needs to develop a corrective action plan. The purpose of a corrective action plan is to mitigate potential risks in the context of a transaction to an acceptable level for the SME. The corrective action plan should cover the following: n Classification of risks n Compensating / Mitigating Controls n Responsible Manager n Target Date for development of the corrective action plan n Whether a new control issue will emerge from implementing the control n The residual risk in the system post the corrective action plan.

Some of the processes for the firm to develop plans are: n Inventory management policies - including the impact of abandoning or adopting the existing inventory management policy. n Customer relationship management policies including specific guidelines to employees when

they interact with customers. For example if there is a guaranteed delivery for a product and the shipping is delayed, the employee calls up the customer to convey the delay and also the steps taken to deliver at the earliest. n Redundancy initiatives - the firm holds additional inventory to take care of supply disruptions. n Development of information systems - the deployment of IT systems can help the firm track problems from across the suply chain network from coming up as a surprise.

5. Developing risk intelligence – the end point of a supply chain risk management implementation is to develop a risk intelligent enterprise – an enterprise capable of understanding the sources of risks, the impact, the corrective action that needs to be taken and the monitoring systems that need to be in place.

SCRM Challenges for SME

When SME’s attempt to implement SCRM initiatives they often find themselves dealing with a unique set of challenges. Some of these challenges relate to their size - SME’s are not large enough to have a separate supply chain risk management set up.

Further, SME’s often do not have the personnel with knowledge of sophisticated risk mitigation strategy and long term contingency planning Similarly, lack of clout and buying power makes it difficult for SME’s to influence suppliers by offering large volumes of business. When a supply disruption occurs the larger players often get the product before the SME’s.

Most SME’s don’t have the required capital to invest in technology.

And most of these technologies are skewed towards the larger firms. This puts SME’s at a significant disadvantage and often prevents SME’s from linking their systems with the other entities in the supply chain.

Risk is all pervasive. It is in the interest of the SME to focus on supply chain risks. Instead of a big bang, high investment risk management program, SME’s can start with simple process of identification, assessment, mitigation and resilience. These are more process oriented and hence can Source: Kevin McCormack‐ Risk events organized by categories be implemented easily, at lower costs.

And the payback will be easier.

32 SCMPr

November 2013

EXCLUSIVE SEMINAR ISCM Brings you a a Unique Unique Conference Conference on on the the emerging emerging ISCM Brings you scenario scenario in in Supply Supply Chain Chain Management Management ISCM is is at at the the forefront forefront of of Supply Supply Chain Chain education education in in India.

India. We We bring bring you you an an opportunity opportunity to to listen listen and and interact interact with with ISCM some of the experts in supply chain management from the Asia Pacifi c region in a one day conference on emerging some of the experts in supply chain management from the Asia Pacific region in a one day conference on emerging trends trends in in SCM SCM and and what what we we in in India India can can do do to to tap tap the the opportunity. opportunity.

Some Some of of the the probable probable speakers speakers are: are: Sean Sean Rafter Rafter – – Head Head Logistics, Logistics, Asia, Asia, Save Save the the Children Children Brian Brian Beveridge Beveridge – – Sr. Sr. Director, Director, Global Global Supply Supply Chain, Chain, ATMI, ATMI, USA USA Peter Peter L. L. O’Brien O’Brien – – Russell Russell Reynolds Reynolds Associate, Associate, Australia Australia Mark Mark Goh Goh K. K. H. H. – – Associate Associate Professor, Professor, NUS NUS Business Business School School (Department (Department of of Decision Decision Sciences) Sciences) Wayne Wayne Hunt Hunt – – President President // CEO CEO TOLL TOLL Global Global Logistics Logistics Divn., Divn., Singapore Singapore Dr. Dr. Ioannis Ioannis N. N. Lagoudis Lagoudis – – Assistant Assistant Professor, Professor, Malaysia Malaysia Institute Institute For For Supply Supply Chain Chain Innovation, Innovation, Malaysia Malaysia Paul Gallagher Gallagher – – Asia Asia Pacifi Pacificc Supply Supply Director, Director, DIAGEO, DIAGEO, Singapore Singapore Paul Gaurang Gaurang Pandya Pandya – – Vice Vice President, President, Industry Industry Strategy, Strategy, JDA JDA Software Software Group, Group, Inc, Inc, Dallas, Dallas, Texas Texas Sunil Sunil Chopra Chopra – – IBM IBM Professor Professor of of Operations Operations Management Management and and Information Information Systems, Systems, Kellogg Kellogg School School of of Management Management Dr. Dr. Mahender Mahender Singh Singh – – CEO CEO & & Rector, Rector, Malaysia Malaysia Institute Institute for for Supply Supply Chain Chain Innovation, Innovation, Malaysia Malaysia

If If you you would would like like to to participate, participate, please mail mail in in your your intent intent to: to: info@iscmindia.net info@iscmindia.net please Presenter Presenter

Media Partner Partner Media

Institute Institute of of Supply Supply Chain Chain & & Management Management

1st 1st Floor, Floor, Durgadevi Durgadevi Saraf Saraf Institute Institute of of Management Management Studies, Studies, SS V V Road, Road, Malad Malad West, West, Mumbai Mumbai 400064.

400064. email:info@iscmindia.net z website: www.iscmindia.net email:info@iscmindia.net z website: www.iscmindia.net

n BENCHMARK

n Knowledge

n REPORT

n WHITEPAPER

n HUMAN RESOURCE

The consulting firm Price Waterhouse Coopers have published a five part report titled “Transportation and logistics 2030”. The report covers five major issues in the realm of transportation and logistics and how they will pan out by 2030. SCM Pro gives you a commentary on the first part of the report - How will supply chains evolve in an energy-constrained, low-carbon world? – for your benefit.

The PWC Report on

Transportation and Logistics 20 M

odern society depends on centralized production (production concentrated at a few locations) and distributed across the globe. This calls for the development of an efficient and environment friendly transportation and logistics segment. The question each producer and consumer will have to deal with is – how will a change in the price of fuel impact the supply chain – especially the transportation and logistics costs. The first part of the report deals with this issue. As supply chain managers, we in India too need to be familiar with the impact of fuel costs on our operations. Another point of contention is that the transportation segment adds to the carbon dioxide emission and contributes to global warming. It is reported that transportation sector accounts for around 13% of the global carbon dioxide emissions.

The report covers a few broad areas – the impact of fuel price on the transportation and logistics industry, the consumer response to changes in fuel prices and green concerns, how the transport and logistics sector will evolve in response to these changes and how these forces will affect the design of future supply chains.

34 SCMPr

November 2013

PWC report

030 SCMPr

November 2013

35

35

pwc report

The expert panel feels that: 1. Oil prices will not rise in the order of magnitude necessary to threaten conventional transport.

2. Alternative energy usage will increase, but a global energy turnaround will not be achieved by 2030.

3. Reducing transport emissions will be a greater challenge for transport companies than the supply of energy.

4. Costs related to the carbon footprint of logistics processes will be allocated to the causer.

What the report has not evaluated is the direction the transport and logistics sector will take when faced with rising fuel prices – will the rise in fuel price lead to the sector resorting to changing the

Delphi Results of Changes in Consumer Behaviour

5 5) Integrated living environments

4 Impact on T&L

The Impact of Fuel Price – the report reveals that the expert panel does not believe that the existing dependence on conventional fuels will see a drastic change. Nor will the oil prices shoot up to levels not thought of - to a question whether they see oil touching USD 1000 per barrel by 2030, the panel strongly disagreed. The panel does not see alternate fuel sources gaining currency either.

4) Diminishing Individual mobility 7) Personal influence on logistics process

3 2 1 0

40

30

Theses:

7) 2030: Personal influence on the logistics process has become more important for customer than the speed of delivery. Customers actively intervene in controlling the delivery process of goods.

Delphi Results: Probability: 56% Impact: 3.8 Desirability: 3.2

way they buy or deliver. It is quite possible that fuel price rise may render disruptive technologies like 3D printing economical. For example will 3D printing change the way we buy products. Instead of

Oil Price($)

75 50 Projections

History

2015

2020

2025

2030

Source: US Energy Information Administration, EIA (2008) International Energy Outlook, EIA (2009) Annual Energy Outlook

November 2013

100

6) 2030: Consumer behaviour has changed such that locally produced products are strongly preferred.

Delphi Results: Probability: 60% Impact: 3.9 Desirability: 3.5

100

36 SCMPr

70

5) 2030: Work environments, everyday activities and leisure options are better integrated, which has led to considerable reductions in transport.

Delphi Results: Probability: 58% Impact: 2.7 Desirability: 3.6

125

2010

60

4) 2030: Due to scarcity of energy resources, the mobility of individuals has strongly decreased.

Delphi Results: Probability: 46% Impact: 3.5 Desirability: 2.2

150

2005

50

Estimated Probability (%)

Oil Price Projections

25 2000

6) Locally produced products

manufacturing at one location and transporting across the globe, we will be able to print out the product we need from the neighboring 3D print shop. In fact, in May 2013, a 3D printed pistol did successfully complete trials in the USA. Apart from this, large rise in fuel charges will lead to the evolution of a collaborative supply chain, with producers across industries sharing their transportation and logistics infrastructure, in a bid to bring down costs. This may also lead to the adoption of multi modal transport systems, with road being used for the last mile connectivity. One transporter who did not want to be named says that as long as green practices and sustainability are not demanded by the customer, transporters have little incentive to go

PWC report This means we will be able to transport more products with the same infrastructure. Similarly, composites will enable us to produce lighter materials that can again save on shipping costs. BMW has an experimental prototype car with a special fabric for the chassis.

Historical Development of Different Transport Modes

Design of future supply chains

Result Design Supply TheDelphi experts believe thatof supply chains of willFuture continue to become Chains more efficient through the development of continuous real-time control of the flow of goods; this thesis receives the highest overall probability 15) Realrating5of any in our survey. The trend towards real-time control is expected to have atime strong, positive 14) Global of scales. control impact on the industry, with high ratings on both probability12) andSetup desirability Unfortunately it Supply Chain production sites won't result in supply chains that are resistant to external shocks.

4

Impact on T&L

Two other trends also look to be fairly likely: transportation costs will be a predominant criterion in 16) Robust Energy of energy consumption will be a determining where to set up production sites, and the13) minimisation Chain paramount criterion in overall supplySupply chain design, ratherConsumption than cost efficiency and speed.

3

The report cites four trends that will shape up by 2030.

1.2 Decisions where to set up production sites will increasingly be influenced by transport costs.

This will, however, not lead to a trend of 'deglobalisation'.

2. The minimisation of energy consumption will become a paramount criterion in supply chain 1 design, together with total costs and the speed of delivery.

3. Continuous real-time control of the flows of goods eliminates disturbances in the supply chain.

0 chains30 40 immune50 60 so a high70level of flexibility 100 and 4. Supply will not be totally to external shocks, Estimated Probability (%) adaptability will be key.

Theses: 12) 2030: The reduction of transportation costs has become the predominant criterion in determining where to set up production sites.

Delphi Results: Probability: 59% Impact: 3.8 Desirability: 3.3 13) 2030: The minimisation of energy consumption is paramount criterion in supply chain design, rather than cost efficiency and speed.

Delphi Results: Probability: 55% Impact: 3.7 Desirability: 3.7 14) 2030: Global trade and transport only exist for valuable, time-critical or specialised goods. Local procurement, manufacturing and distribution dominate the commodity market.

Delphi Results: Probability: 45% Impact: 3.9 Desirability: 3.0 15) 2030: Continuous real-time control of the flow of goods eliminates disturbances in the supply chain and there by significantly increases resource efficiency.

Delphi Results: Probability: 71% Impact: 4.0 Desirability: 4.3 16) 2030: The logistics world has developed solutions to design flexible and robust supply chains that are resistant to external shocks.

Delphi Results: Probability: 45% Impact: 3.8 Desirability: 4.5

green. Also, customers refuse to adopt for a green transportation platform if it takes more time or is more expensive! Us energy information administration On the second issue of how consumer behavior will change by 2030, the expert panel feels that: 1. Mobility resulting from business or leisure travel will be restricted in order to reduce costs and carbon footprint – we are seeing early signs of this today. Video conferencing is slowly gaining currency.

Certain industries allow their employees to work from home.

2. Individual transport needs may decline as living environments, including both home and work, return to being more integrated – in Mumbai we are seeing a gradual dispersion of the central business district to the distant suburbs – the once distant suburb of Malad and Goregaon is now emerging as an office hub, reducing the commute.

3. Locally produced products will be preferred by consumers 4. Consumers exert a greater level of personal influence on the logistics process and actively intervene in last-mile delivery.

Each of them is a valid assumption. There are some interesting experiments happening in the last mile delivery process. During the “Singles Day” sale in China (November 11 is celebrated as singles day in China, when young bachelors organize parties and karaoke to meet new friends or try their fortunes.) Alibaba, the Chinese ecomm giant generated sales worth USD 5.7 Billio –leading to delivery of around 78 million packages.

Alibaba’s daily delivery is around 20 million packages. To meet this rush, Alibaba co-opted ordinary Chinese as their delivery boys. They did the equivalent of asking people living in a building to deliver packages to people in that building. We may see such innovations gaining ground.

SCMPr

November 2013

37

pwc report Opportunity Radar for Transportataion and Logistics Operators

Drivers in transport modes The expert panel saw the following changes as the drivers of change in transportation modes.

1. Larger means of transport may increase in prevalence, necessitating significant infrastructure investment.

2. Issues regarding operational flexibility and investment complicate a switch to more energy efficient transport modes.

3. Autonomous transportation systems will support speed, accuracy and better use of infrastructure.

4. Monopolies for urban deliveries do not look to be a likely or desired means for administrations to reduce logistics bottlenecks.

While by and large these are true, disruptive technologies can alter our transportation requirement.

With the rise of nano technology and composites, the product dimensions will continue to shrink.

This means we will be able to trans38 SCMPr

November 2013

port more products with the same infrastructure. Similarly, composites will enable us to produce lighter materials that can again save on shipping costs. BMW has an experimental prototype car with a special fabric for the chassis.

Design of future supply chains The experts believe that supply chains will continue to become more efficient through the development of continuous real-time control of the flow of goods; this thesis receives the highest overall probability rating of any in our survey. The trend towards realtime control is expected to have a strong, positive impact on the industry, with high ratings on both probability and desirability scales.

Unfortunately it won’t result in supply chains that are resistant to external shocks.

Two other trends also look to be fairly likely: transportation costs

will be a predominant criterion in determining where to set up production sites, and the minimisation of energy consumption will be a paramount criterion in overall supply chain design, rather than cost efficiency and speed.

The report cites four trends that will shape up by 2030.

1. Decisions where to set up production sites will increasingly be influenced by transport costs.

This will, however, not lead to a trend of ‘deglobalisation’.

2. The minimisation of energy consumption will become a paramount criterion in supply chain design, together with total costs and the speed of delivery.

3. Continuous real-time control of the flows of goods eliminates disturbances in the supply chain.

4. Supply chains will not be totally immune to external shocks, so a high level of flexibility and adaptability will be key.

The 4th International

Exhibition & Conference

www.sauditranstec.com

TRANSPORTATION, MATERIALS HANDLING, WAREHOUSING & LOGISTICS 9-11 December 2013 Dhahran International Exhibitions Center, Dammam, Kingdom of Saudi Arabia

column

Changing paradigms of

E-Commerce Environments

In India

The future of e-commerce in India is showing the positive hope. It is very imperative to increase the service levels through the customization with respect to individual sectors, products and regional specific customers.

I

Prof. V G Venkatesh Symbiosis Institute of Business Management (SIBM) - Bangalore.

Symbiosis International University, Pune.

40 SCMPr

November 2013

n India, the current buzz word is “online business� in all the formats of businesses such as B2B, B2C and C2C. The internet usage in India is growing at the rapid speed. The reports say that the country has got around 137 million internet users in mid 2012, which is poised to grow at the rate of min of 20%. During the last decade, a steep growth has been witnessed in terms of acquiring new technologies and strategies for e-supply chain environments. Business Today report that online business in total organized retail in India is set grow by 5.3% in 2021 from current 0.1 % and to $76 billion in about eight years.

In the recent times, the emergence of this field is very prominent in supply chain. The impact of e-commerce domain is visible in the industry especially in the areas of Inventory, Packaging processes and Logistics management. Every firm is looking out for an opportunity to capture the big share in the e-commerce environments. According to Forrester Research Inc, during the period of 2012-16, the e-commerce market in India is set to grow as the fastest within the Asia-Pacific region at a CAGR of over 57%.

Research reports say, In India, technology products are traded high than the life style one, which is the reverse case compared to global scenario. But the reports give evi-

dence that B2B is very slow compared to other segments B2C and C2C. Many of the Indian e-com companies are trying to follow the successful models from the west. While models like Amazon and e-Bay are showing the acceptance amongst the Indian e-com players, the B2B models like covisint are to gain momentum. Auto and health care majors were highly successful in reducing their procurement costs considerably through this e-commerce platform developed by Compuware Corporation. In India, the viability of similar models can also be tried out.

Firms, trying to establish the network of business with the customer service focus, are willing to capture every opportunity to revitalize their operations. But they should be ready to consider the local factors and align themselves with them. It is highly imperative to read the Indian customer mindset as the country is one of the highest multi cultural environments in the world and make the plans accordingly. And the problem starts there‌ The Indian firms are also forced to respond with innovative ideas for the domain specific needs to remain in the business. But the challenge is to establish the key success factors and to sustain their proven USPs, as the market is flooded with number of e-commerce firms. It creates confusion in the buying decision of customers, as the

column

Reports say that return rates of COD shipments are upto 40 % as customers may change their mindset not to accept the product or due to other unknown reasons.

product offerings and promotions are really not streamlined. Still there is a fear amongst the small time retailers/business players to venture into online mode, as it requires the different dynamics altogether.

For any Indian consumer, the price is the dominant factor to make decision, even though the service and other factors come secondary. The concept called brand loyalty, still needs to be researched well within the Indian context, that too with respect to consumers as they are completely over dominated by the price factor. Further, there are certain factors that affect the business dynamics. Key factors are: Infrastructure, Logistics, Payment gateway and Promotions meant for E-business. Current competitive business situation leads to the implementation of a differentiating strategy in the above layers to protect the thin margins available in the transactions.

The issues are being discussed in the rest of this article in detail.

While internet usage is growing at the rapid speed, India is still lacking the speed at which the competitor countries work. It is evidenced by slow transmission during the entire order management and higher speed (3G and 4G) is not available for the citizens at the affordable rates. Lack of awareness about the e-commerce and its advantage is slowly getting diminished. Many of the payment transactions are abandoned or wrong transactions/debiting happens, resulting in poor experience for the stakeholders. Another infrastructure barrier is the availability of highly sophisticated ecommerce system. Though, India is being identified as a hub of the IT industry, still the entire system management is being procured at the high cost. Still, the model of Re-sellers/ E-commerce platforms is highly dominant, as the Merchants are highly reluctant to invest on their own e-platform for their sales and promotion activity. Hence, the price points are highly influenced by the e-commerce player, who decides the price point of the product. Another important factor, that affects availability and acceptance of professional warehousing practices for e-commerce ventures.

In India, still warehousing is being treated as the storage point only, not as a value adding place. The important value addition

exercises at warehousing are break bulk, reestablishing the auto identification at the product level, kitting as well as cross merchandising, handling the returned products and etc. We don’t have manpower with the scientific approach on handling the product.

The need for training in those lines is highly expected. It is noted that firms look for the opportunity in the bulk business, not as the individual product level. In this context, all of demand management exercise goes for a further refined look to adapt the e-commerce environment. At the warehouse stage, rationalization of SKU handling is to be convinced at the managerial level for any e-com venture. Moreover, Product owners are much happy to deliver the already packed products to the buyers (customers), instead there is a great need to customize the packaging according to the needs/taste of the customers.

So, at the background of e-commerce, product packaging and the allied industries are in need to support the merchant companies by innovating the sustainable packaging, cost-less, design for logistics packaging. So far the packaging industries roles were very passive, now it’s the right time to get into active research for contributing in the last mile delivery process in e-commerce. In India, still packaging industry is dominated by the product merchandising companies. With ecommerce companies in, these companies would get the due attention. The next factor which has got the attention is the payment methods and gateway. For Indian e-com companies, the advent of cash on delivery system may seem to be an advantageous one.

Although it removes the barriers in the customers to have the feeling of the products as well as less fear of losing their private details to anonymous customers, It increases the cost of the operations.

Reports say that return rates of COD shipments are upto 40 % as customers may change their mindset not to accept the product or due to other unknown reasons. It increases the operating cost of the e-commerce firms or merchants. Further, many companies try to avoid COD due to the risk in handling the cash by the low level employees.

COD also increases the cash cycle due to settlement time between Courier, Express and Parcel service (CEP) companies and sellers.

SCMPr

November 2013

41

column This cycle may get extended to 3-4 weeks in the practical ground.. Further, payment gateways are also creating a fear sense for losing credit and debit card details. This leads to the innovation of new and secured payment gateways in India in the last 3-4 yrs. Some of the leading gateways are Payupaisa, CC Avenue’s Social Network In-stream Payment collection (SNIP), Mobile phone application such as Aasan pay, Zong and etc. These payment gateways are currently having the digital certificate called Secured Socket Layer (SSL), which protects the customers’ data. This attracts many of the customers to do the business through internet, alleviating their fear of fraudulent procedures loosing credit and debit cards details. Certain payment systems like paisapay.com release the amount to the merchant companies only after the customer confirms the receipt of the goods at their end. Next barrier is the logistics and delivery.

In India, the existence of specialty CEP service companies is very less. This leaves MNC companies such as FedEx and DHL to dominate and handle the last mile delivery, causing the increased delivery charges which would burden the customers. It is imperative for any 3 party service providers to give the service of tracking at each stage of the supply chain. To create that expertise is required, which very few companies are affordable to do that by balancing with the cost. This trades off with the customer satisfaction also. Several retailers are developing the in-house logistics capability; too woo the customers as well as to increase the reliability for the service. Wherever the companies are facing the problem, regional logistics service providers are also being considered. With products are sold in the Stock and sell mode, these logistics service providers are expected to have warehousing facility too, in case the e-commerce/merchants do not have the facility to do so. Due to the less fleet service in the Airlines, same day delivery model practiced in west cannot be replicated 100% in India.

Another new development which is now happening is M- Commerce, which is the product of E-commerce. TRAI (Telecom Regulatory Authority of India) in 2013 says that In India, mobile subscriber numbers 42 SCMPr

November 2013

will reach to 1.2 billion by 2015. This is due to the increase in the mobile phone connectivity and subscribers. All the personalized services including the entire order management is possible through mobile technologies. Reports say that 40 % of the mobile users are using the Internet and in that, 3 % - 4 % trade the products through the commerce sites, leaving the space for software companies to develop the new mobile applications.

Companies like mChek develop the order management system and portals like myntra. com and many more have redesigned their website to fit into the mobile. This increases their total volume of the m-business eventually. With the introduction of Mobile wallet concept, RBI has issued certain guidelines to regulate the M-commerce. For the banks also, the mechanism is highly helpful. With the introduction of 3G and Smart phones, there will be a steep growth in this particular sector. This technology is also used for the product scanning and transmitting the same information via mobile internet.

Many venture funds are supporting the Indian e-commerce firms like Flipkart and Snapdeal. They motivate the business players to innovate the new systems. But due to the dynamism in the markets, many players could not survive in the business, as the sector lacks the trained manpower as well as suffering through high attrition rate and also is operating with very thin margins.The e-commerce environment impacts the entire back end supply chain to work in tandem with all the stakeholders and front end in the business to ensure the best service possible in the order cycle. Regular intervention of government and RBI help the industry to be streamlined. Nevertheless, India does not have a separate e-commerce law as the other developed countries and also it is currently governed by IT act 2000, which lacks clarity from the e-commerce point of view. The development of stringent norms is mandatory to protect the stakeholders such as financial companies in the order management.

With majority of the population is in the rural side, e-commerce option is having a huge potential to tap those market through the fine tuned services such as the regional warehouses and customized websites in the local languages.

In India, the existence of specialty CEP service companies is very less. This leaves MNC companies such as FedEx and DHL to dominate and handle the last mile delivery, causing the increased delivery charges which would burden the customers.

08 09 10 July 2014 Pragati Maidan, New Delhi

International Exhibition & Conference on Warehousing | Materials Handling | Storage | AIDC | Packaging | Logistics | Supply Chain | Transport Foundation Partner

Supported By

Organised By

Media Partner

www.IndiaWarehousingShow.com

n BENCHMARK

n Knowledge

n REPORT

n WHITEPAPER

n HUMAN RESOURCE

Skill Deficit in LOGISTICS INDUSTRY

44 SCMPr

November 2013

44

ISCM whitepaper In a fast emerging economy, with robust industrial growth, it is obvious that Logistics industry will acquire an important place. Efficient and effective Logistics management has become essential determinant of business successes. Dr. Rakesh Singh takes a look at the skill deficit in the Logistics Industry.

I

f you’re like most logistics organizations, maximizing customer satisfaction and loyalty is at the top of your mission statement. And to accomplish this goal, your organization is dedicated to the pursuit of “the perfect order.” The perfect order is a proven objective that measures the error-free rate of each stage of a purchase order. It embodies the endless pursuit of perfection measured by 100 percent customer satisfaction and retention.

The high level of inefficiency in Logistics activities in the country is a matter of great concern. This inefficiency is across all modes of Logistics. India lies in the zone of

important emerging market, it is expected that the organized sector will soon start increasing in size by building itself up or by acquiring smaller players. Whatever happens to the structure of the Logistics industry, the Rs. 4 Trillion industry which is already plagued by a huge skill deficit will find it difficult to attract better talent. The required pace of quality and improvement, demands a rapid development of capabilities of Logistics Service provider and with Logistics being a service provider, skill development will emerge as a key capability.

Almost all the forums at Supply Chain today discuss skill deficit as

Supply Chain today discuss skill deficit as a major concern for both, Logistics Service Provider and the User industry. Most often these discussions tend to look at the an angle of attractiveness of the industry. countries with poor level of infrastructure, low IT penetration, limited players and fragmented industry. It does not compare well even with countries like Phillipines, Indonesia and other South Asian countries, not to speak of South Korea, Hongkong, Singapore and Japan.

The unorganized sector accounts for a major share of Indian Logistics market while the integrated Logistics service provider accounts only for a very small share. With India emerging as an

a major concern for both, Logistics Service Provider and the User industry. Most often these discussions tend to look at the angle of attractiveness of the industry. It is often found that the blame goes on low remuneration level as well as poor image of the industry and this discussion ends up with “what needs to be done to retain the talent in the Logistics industry”.

According to me, though these issues are important and an integral part of skill deficit the industry faces, the skill gap in Logistic in-

dustry can be broadly classified in three categories : n At Operational level there is

a dearth of truck drivers, load supervisors, warehouse managers and sea farers. The study done by KPMG and CII Institute of Logistics, clearly brings out that there will be a demand for 5 million truck drivers by 2015 as against 3 million truck drivers with exist today. Most of these 3 million truck drivers are illiterate without any formal training in the job.

The demand for loading supervisors would be around 0.5 millions in 2015, while there are only 0.3 million loading supervisors in the industry today. The loading supervisors’ position carries a lot of responsibility, but they do not have any formal training and most of them are semi-literate. Even if we assume what the KPMG report indicates, that 50% of the manpower will be generated internally, there is a huge need for training and attracting young talent as loading supervisors. The same thing goes for warehouse managers too. By 2015, we will need 35000 warehouse managers, but there is no training institute which seriously trains warehouse mangers. The operational needs of the industry as far as skilled labour is concerned, will undergo a tremendous change because of India’s central position in the world economy and will also raise the needs for training because of technological changes as well as customer expectations.

SCMPr

November 2013

45

45

ISCM Whitepaper n

The mid-level managers, both in LSP and user industry are of poor quality. There is no good training institute which can cater to the needs of these managers and transform them from executives to managers and then to leaders. The large number of business schools offer executive development program, but they are caught up in the trap of their own understanding and hence end up replicating what is there in the books, ignoring the practice that exists as well as the practice that will be followed in future.

On the job training is of poor quality primarily because of an industry which is highly fragmented and seems to be less innovative.

n

The third level of skill deficiency is at the leadership level where the supply chain heads and senior managers come from various backgrounds and tend to believe in practices that they have followed earlier and make incremental changes, which are more operational in nature rath-

er than strategic. This skill gap arises primarily because even the teaching at business schools, both at Post Graduate and Advanced Management programs, is caught in the trap of operations management, which is highly academic and quantitative. Most supply chain papers are operational heavy and lack cross functional approach to understanding supply chain issues.

They fail to provide a modern day supply chain perspective as they are taught by professors who have left behind the trends that dictate the growth of the industry.

I wonder in a country like India where a large number of people with matriculation and intermediate qualification are looking for jobs as watchman, drivers, soldiers, sailors, factory works, we find a dearth of people in the Logistics operations. There is a need of Logistics players to set up a number of training institutes, which may be by availing the Skill Development Fund from the Union Government and

starting a knowledge awareness program so that the young youth of this country who are unemployed can be employed in this sun rising industry. I hope an initiative will be taken by the players in Logistics who are looking at newer opportunities of business in the same domain.

As far as the middle and top management education is concerned, the industry should partnership with business schools who have a capability and intent to cater to the Logistics industry and create a talent management program which caters to the operational as well as strategic needs of the industry and create faculty who could take this forward to help industry build its talent.

Business schools can be partners with an Advance Management Program catering to the leadership of this industry and be more practical and contemporary so that it benefits the future leaders of this industry to visualize the future of the industry and be prepared for growth. This will be really good for India, which is on the Move.

www.scmp.in ...live supply chain 46 SCMPr

November 2013

Industry Portal for the Supply Chain Professional

subscription form

SCMPrSCM r P M P SC An U Agenda for r actice

n pr ends n tr dge owle n kn per te pa urce n whi reso man No.4 n hu Vol. 1— 0

n KNOWLEDGE n STRATEGY n BEST PRACTICE n TRENDS n humAN RESOuRCE

`15

13 May 20

al Supply Supp fessionChain Management Professional ly Ch ent Pro a in M g a n a g em

July 2013

it 2013

Summ

ly Chain

c k intial n th U n lo Porte Grow a Supp

the

Pharm

ing: hous ware

of the in t r a e H ly Cha Supp

Vol. 1—No. 5 `150

a na g

Phar emen t Pro ma S fessio uPPl na l y Ch ain

nlChan the Pockinge oten g tial

Highe 2013, Mumbai

for

C Supply

hain M

ted receden from of unp midst varying vators in the e options inno ay is , and tipl ring withtheir own stry tod with mul partne rma induies faced ment, kets with an Pha pan develop ng new mar The Indi with com ecule Supply turi growth for new mol ts to cap s on the never – ed focu and ng righ going . anc keti ent ions and enh ver consist for mar formulat a new service deli existing brings lore and s and s DAT E user ario exp 3 ortunitie together This scenforcing to E 201 TH brings ges and opp – in cies.

2013 Chain 14 JUNING llen ply cha efficien Summit te the cha TIM by sup before Chain bera 0 pm adapted Supply to 5:0 and deli tegies Pharma to discuss 9:30 am UE the stra s re to VEN provider exposu erts in the LIT Chain and get stry exp Drivers ply age T H E LA indu y Sup Eng AI rma Visibilit onal and MU MB Chain es in Pha professi Skill Set Supply ign Issu

14th

Optimiz

it Focus

Summ

FOR

By:

tegic

and Des in ply Cha

Stra es for Chain Strategi led Sup Supply Control ceutical Pharma perature g Tem sor: Managin Spon ciate Associate

d Organise

ation

June

Partner:

HID TO: RAS

gy &

Media

Partner:

Partner:

/ 122

0121

AL@

SCM

- 6002 ON 022 L US KERS OR CAL I O N M A P.IN ECIS

WITH E RA CT

.IQB

NT WRI TE I TY TO I ASE RT U N N PLE ATIO OPPO ISTR KING TE REG E TW O R DEL EGA H I G H N A

Technolo

ledge

Know

Asso

THE

D

Ports as an Economic Unit on its own, provides lifeline for trade in the country.

Pg.14

In Thise Issu

speaK guru ui: Siddiq Arif A. mpetitive For Co ouse Wareh 1 Page..1

Ware Fe hous In ThIs ing AFI srsou entie ature: utom rs in ation P

CUS LSP FO w: Inter viene, Saha mn Milind & CEO , colu InsI tor ec AcAdemic the: gh Dir DIESLcolumn t ve uti ThEx Anil Sa s in AdvocAcy e Precom 2 ge Competitive allen ain Pitfalls ise an Page...4 ModellingChSupply Ch Strategy for Data of Big d Supply Chain Dynamics Future Today ...38 LsP Page...8 Page Fo Page Page...36 Pirojsh cus ...07 CEO, aw Sarkar i Mah indra Logi stics Page ...36

FeAture Frontiers in Supply Chain Educatione

Page...46

g.40

In I s sThIs ue

hR Empl Enga oyee Step ement: Fi s to Read ve iness Page ...46

n B ES n R T PRACTI ES CE n Sk PonSE Il n R lS ESEA RCh n h u m

An R Augu ESo st 20 uRC 13 E Vol. 1—N o. 6 `150

SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry. Specialised articles are contributed by the Industry Leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published in the 1st week of the month, the magazine is distributed to the readers through courier.

Currentxly the print copy of the issue is available only for readers based in India. cover Price `150/-

Get Your Subscription Now! One year Subscription Rs.1,500/- Two Years Subscription Rs.2,850/Name: . ..........................................................................................Designation.....................................................................

Company Name:...............................................................................Industry...........................................................................

Address ................................................................................................................................................................................ .............................................................................................................City: . .............................................................................

State:........................................... PIN Code: .......................................................... Country: .....................................................................

Tel: ................................................... Mob. .......................................... E-mail:.......................................................................................

DD/Cheque No. ........................................ Bank ..........................................Dated .............................For

`...............................................

Your DD/Cheque should be drawn in favour of B2B Media Group Subscription form alongwith your payment should be sent to:

, 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai-400 069.

Tel: + 91 22 60020121 / 122

n BENCHMARK

n Knowledge

The engagement with potential employees happens every time you or your brand interacts with a person, whether in an employment context or not.

T

he phone rang. It was a candidate who was due to attend their first interview with a multi-national client. The call came exactly one hour after the scheduled interview time. I was delighted assuming they had called me to provide interview feedback.

Instead, the clearly unimpressed voice on the end of the line filled me with dread,“it’s been over an hour now that I’ve been waiting…what is going on?”

I had spent weeks encouraging this passive candidate to consider their career options and get them excited by the prospective employer. By “passive” I refer to candidates who are successful employed and therefore not immediately seeking new employment.

I tried to call the client. I then tried the general office line and eventually discovered that the missing manager had been waylaid in a meeting and despite knowledge of the interview, no one had informed us of the delay.

The candidate gave up and left the client’s premises without the interview taking and a promise that the meeting would be rescheduled. Time and frustration is one thing but the real damage in this case was the overall poor impression left with the candidate.

With a sense of responsibility to my client’s reputation in a candidate driven market, I set about pointing out to the interviewer the importance of candidate engagement. I was assured that they took this seriously and that employer of choice’ behaviours were front and center of their actions.

Darryl Judd

COO, Logistics Executive darrylj@logisticsexecutve.com

Manju Vijayan Regional Executive Search Consultant, Logistics Executive Group ManjuV@LogisticsExecutive.com

48 SCMPr

November 2013

n REPORT

n WHITEPAPER

n HUMAN RESOURCE

talent

How To Lose A Candidate In One Day...

Why Candidate Engagement Is Important?

Barely a week later, this was once again put to the test!

Another candidate, another interview (this being the candidates second interview), and with my once again passive, headhunted candidate in a taxi on their way to the meeting, the HR Manager called, advising that the interview was cancelled as one of the interview panel had been detained in a meeting.

Once again the lack of prior notice was problematic. The candidate who had taken time off from work to attend the interview was clearly upset and felt that the prospective employer had undervalued their time.

The end result was that despite the excellent opportunities on offer with the role and company, the candidate chose to not pursue the

role‌.and will no doubt share their negative experience with others. Damage done and one valuable resource lost. The hiring manager was very disappointed but there was nothing I could do.

With the advent of social media, industry networking groups and professional/personal blogs, the candidate market place is becoming smaller. It is a place where positive and negative words or reputations travel faster and candidate’s daily weigh up the virtues of each employer as they consider their next move.

With examples like the above, you can imagine the mere mention to potential candidate of an opportunity with a client who has this reputation results in a firm no. Word of mouth is powerful and people are quick to share

positive and negative experiences.

I wonder how many hiring managers ask or consider things like: n How am I making candidates feel during the critical engagement process? n Will they describe the experience positively in the marketplace?

After all it is not just the company embarking on the hiring process and for each person successfully selected for the job, there are those who will be unsuccessful for whom the experience will leave a lasting impression.

Candidates invest significant time, money and effort to meet up with prospective employers. First impressions are extremely crucial in determining the end result.

There are many ways to considSCMPr

November 2013

49

talent er candidate engagement. In one sense, engagement with potential employees happens every time you or your brand interacts with a person, whether in an employment context or not. The more positive the associations a person has, the more likely they’ll be to apply to your posting, and the more receptive they’re going to be to a recruitment call when it comes.

Engagement typically refers to the human-to-human connection that happens at the front end of the hiring process.

The process of recruitment is unpredictable and this is often

date perspective, they are assessing potential employers every time they interact.

The same applies to interviews, particularly the first round. Clients all desire the same thing – they want the best talent to join their company ahead of their competitors. In a candidate driven market, the interview is as much about the candidate assess the company, its staff, the environment and the role as much as it is about the client assessing the candidate. There is no one party that is more important in this chain of client, recruiter and candidate.

Taking time to engage and increase the candidate’s interest in the company by outlining benefits, career prospects, culture and where the company is heading can only reinforce the candidates interest in the job. taxing for all parties involved.

Mr Kim Winter, Global CEO for Logistics Executive Group, succinctly articulates the challenge of recruitment when he says “this is the only industry where the product, in this case the candidate, can say no”.

We can all do our best to identify, present and promote the ideal candidate for a job but in the end, it’s the candidate who makes the final call about whether he or she will accept an offer from the client. Hence the importance of engaging the candidate from the very beginning of the process to an end conclusion. From a candi50 SCMPr

November 2013

Taking time to engage and increase the candidate’s interest in the company by outlining benefits, career prospects, culture and where the company is heading can only reinforce the candidates interest in the job, shifting the balance back to the hiring company and allowing them to proceed with the serious task of evaluating the candidates value.

So what can be done to improve you candidate engagement and to avoid the above pitfalls?

Well the good news is there are plenty of things and most are very simple; n Treat a candidate with cour-

tesy and respect: If the candidate has applied to a job and shown interest; this does not mean they are somehow indebted to the organization and need to be treated dismissively – so ensure you take time to engage and continue to build on the candidates interest, n Develop an employer brand: One that communicates the corporate culture of the company. n Ensure all staff stay on-message: Create and communicate the employer brand consistently. Business leaders, HR and all hiring managers ensure the right message resonates and reaches the right audience. Without some thought given to clearly define that message, it is difficult to reach out to talent and engage with those skilled professionals. n Proudly protect your reputation: Treat every interaction as an opportunity to get your message out to the talent market. n Maintain a robust talent pipeline: Effective pipelines are composed of qualified candidates ready to work at a moment’s notice. n Strive for an ongoing dialogue with candidates: It is important to continually follow up with these candidates regarding their status and provide feedback.

This is where most organisations fall short. Candidates appreciate knowing where they stand in the extended recruitment cycle.An ongoing dialogue also keeps an organisation’s employment brand fresh in a candidate’s mind.

Human capital is the foundation of any company. Lack of engagement will only undermine your ability to attract talent, bring them onboard and in the long run may lead to high staff attrition.

Engagement is vital from start to finish, and if coordinated systematically and in an integrated way, your business will thrive.

y t l u c a F r o f g n i k o o L s i M

ISC

nals hain professio C ly p p Su e th t invites you sights to help & Managemen quired deep in n ai ac h e C av ly h p u p yo Su If you feel e Institute of knowledge, th r ei th ap tr ts o e areas of: bo ate Faculty in th ci o ss A as s u to join Supply Chain M Agri Business

• •

anagement ing

ing & Forecast

Demand Plann Warehousing

• •

Transportation n Audit • Supply Chai Logistics • Shipping & ign n Network Des • Supply Chai tics • Retail Logis

•

•

Sustainability Logistics Humanitarian

ove in any of the ab s u h it w ed at e to be associ If you would lik from you. ld like to hear areas, we wou

•

Please Contact: girish.vs@iscmindia.net with your area of interest About ISCM: The Institute of Supply Chain & Management (ISCM) is the leading forum for supply chain professionals to share best practices, strategic insights and business challenges and explore the innovations in Supply Chain Management in India. ISCM is one of the leading institutes in the area of Supply Chain Management in India. It offers full time and part-time post graduate programs and specialized management development programs in the area of supply chain and business forecasting. The programs offered by ISCM are highly respected and recognized in corporate sector for employment.

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