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March 2015 | Volume 1 - No.1 | Rs.200
Demand Planning Forecasting to Replinshment
DPFF 2015
'Winners of the Demand Planning and Forecasting Awards 2015'Managing
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FEATURE
The Criticality of Managing Supply Chain Energy EfďŹ ciently
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HUMAN RESOURCE
Keeping ahead of the Curve in 2015
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editorial
"Poised for Take Off" The eagerly awaited Modi budget – both for the railway and the general – have been tabled in parliament. The Rail budget was a paragon of sobriety – no new grandiose schemes, but a firm vision on passenger care. The theme of customer care has resonated in the budget. The passenger, who will see an upgrade in the service quality will be pleased. And be prepared for a hike in the next budget. We like the approach – deliver first, then ask for a payment. We are sure the passengers will not grudge a rate hike if it can make travel easier. Unfortunately, railways have been tall on promises and short on implementation. We are appalled at the gall of the politicians who demand more trains and projects, when projects launched 30 years ago have not been implemented. Kudos to the minister for not promising more, but assuring delivery. When it comes to raising finances for the railways – remember the minister is a distinguished banker. He knows how to raise funds. Opposition members can rest assured. And budget is not the place to spell out financing means!
China managed to pull 500 million citizens out of poverty by encouraging them to work hard – either in factories or as entrepreneurs.
When it comes to the general budget – the reaction of the opposition clearly shows this is a good budget. The only crib is this is a pro rich budget! I fail to understand how a budget that encourages growth is not pro poor. My limited understanding is that if a corporate expands operations or sets up a new venture, it will create employment. This employment will raise a few families above the poverty line. I would urge our leaders of the opposition – including the CPM and CPI to please take a look at China. China managed to pull 500 million citizens out of poverty by encouraging them to work hard – either in factories or as entrepreneurs. That last bastion of communism believes that to get rich is good. I hope our politicians learn this. And if you believe that the best way to help the poor is by handing out doles, why not start from home – donate 50 percent of your wealth to the poor. And we missed you at the Demand Planning and Forecasting Forum. Happy Reading
GIRISH V S
Editor girish.vs@iscmindia.net
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Contents
March 2015 | Volume 1 | Issue 1
Budget 2015
06 SCM News
SCMPro analysis of Rail and General Budget 2015 and Industry Opinion.
Current Updates on Indian Supply Chain News
26 YSCP
How Visible is your Supply Chain?
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28 Feature
The Criticality of Managing Chain Energy Efficentely
30 Feature
Moving towards Demand -Driven Coal Logistics
38 SCMPro
Classroom Supply Chain Risk Management
DPFF 2015 Award
ISCM - SCMPro recognize the leaders of Demand Planning and Forecasting in India
24 SME Corner
The SME Challenge: Supply Chain Resiliency
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Lead Story
SCMPro brings you edited excerpts from the Demand Planning and Forecasting Forum 2015
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SME Spark
The only paradigm - Do not Set False Expectation
40 Human Resource
Keeping ahead of the Curve in 2015.
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Executive Publisher Jayaram Nair jayaram.nair@scmp.in Mobile:9821732929 Editorial Managing Editor Rakesh Singh rakesh.singh@scmp.in Editor Girish V S girish.vs@scmp.in Research Editor Piyush Shah piyush.shah@scmp.in Advertising Soney Mathew soney.mathew@scmp.in Mobile: 9987272050
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SCM News
Dachser Changes Legal Form to SE Dachser, one of Europe's leading logistics providers, has changed its legal form to a Societas Europaea (SE). The family-owned company is not planning an IPO. Dachser GmbH & Co. KG has transferred its major business fields Road Logistics (including the European Logistics and Food Logistics Business Lines) and Air & Sea Logistics to the 100%owned subsidiary Dachser SE. Dachser GmbH & Co. KG itself will operate as a holding company called Dachser Group SE & Co. KG. By providing a modern holding structure, the legal form of the SE offers the family-owned company
an ideal framework in which to combine its corporate structure with subsidiaries in Germany and abroad. In the future, Dachser’s name in the German marketplace will be Dachser SE, but the various names of the country organizations outside of Germany will remain unchanged. This legal conversion is not tied to any change in the shareholder structure. The existing Administrative Board will also continue to operate as a supervisory board at Dachser SE with oversight functions. 6
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(From L to R ) Mr Eddy Bruyninckx – CEO Antwerp Port Authority, Mr N N Kumar – Chairman JNPT, Mr. Marc Van Peel – Chairman Antwerp Port Authority, Mr Shashi Kiran Shetty – Executive Chairman Allcargo Logistics Ltd, Additional Secretary of Shipping Alok Shrivastava, His Excellency – Mr Jan Luyx Ambassador of Belgium to India, His Excellency – Mr. Karl Van Den Bossche – Consul General of Belgium in Mumbai.
Allcargo’s Executive Chairman Mr. Shashi Kiran Shetty Awarded the Highest Civilian Honor by the Royalty of Belgium ‘Distinction of Commander of the Order of Leopold II’ The founder and visionary Executive Chairman of Allcargo Logistics Ltd, Mr Shashi Kiran Shetty has been conferred with the highest civilian honor by His Royal Highness King Philippe, King of the Belgians. Mr Shetty was awarded with the ‘Distinction of Commander of the Order of Leopold II’, making one of the very few global Indians to receive this honor. At the felicitation ceremony held yesterday in Mumbai during the Annual Port of Antwerp reception, over 300 top representative of India’s corporate fraternity including the shipping and logistics industry were present to witness this decoration. Representing the port of Antwerp were Mr. Marc Van Peel Chairman, Mr. Eddy Bruyninckx – Chief Executive Officer and H.E. Mr Karl Van Den Bossche – Consul General of Belgium in Mumbai. His Excellency Mr Jan Luykx the
ambassador of Belgium to India presented the honorary medallion to Mr Shetty during the evening. This decoration has been awarded for Mr Shetty’s glorious efforts in strengthening business relations between Belgium and India, particularly due to the economic initiatives of Allcargo and ECU-LINE. Spanning a marvelous career of over four decades, Mr Shetty is the pioneer and a visionary who has taken India’s logistics industry on a global scale. Under his leadership today Allcargo is India’s largest logistics company in the private sector listed on BSE & NSE. With presence in over 90 countries and over 200 offices globally Allcargo is India’s truly multinational whose consolidated revenues are expected to cross over USD 1 billion by end of this financial year.
Budget 2015
A Great Strategic Opportunity for Logistics Players Push to infrastructure, modernization of railways, setting up of National Agriculture Markets and promised rollout of GST provides the Indian logistics player with a strategic opportunity. Dr. Rakesh Singh, Distinguished Visiting Professor of Supply Chain and Strategy at Great Lakes Institute of Management, Chennai and Chairman, ISCM and Managing Editor SCMPro analyses the Railway and Union Budget 2015.
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hat is there in budget for the logistics and supply chain community? A first glance at the budget does not offer much. But what is to be noted is that budget and its
intent drives hope and direction for the Logistics and supply chain community. The three events of the past week, namely the Railway Budget, the Economic Survey and the Union Budget show a clear break from the past.
It’s high on intent in terms of infrastructure development, bringing efficiency into every aspect of economic activity and creating a more transparent governance framework. The budget lacks detail but according
The freight rate hike is expected to increase transaction cost further. In India, with logistics cost at 14 percent we have been at the higher end of the spectrum as compared to other countries which average around 8.5 percent. So expenditures will probably continue to remain high. In respect to the expectations for the private participation, no interesting encouragements have been made. However the investment plan chalked out by the Railway minister Suresh Prabhu seems to bring some hope for the facility provision and better infrastructure planning by the Indian Railways. Overall, the budget this year seems to be a clean up operation which is relevant and much required given the current atmosphere in the Indian economy.
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Rajesh Neelakanta, Executive Director and CEO of BVC Logistics on impact of railway budget on the logistics sector.
The budget 15-16 is positive as far as logistics industry goes due to the much needed focus and investment on infrastructure. India's infrastructure will be a key driver not only for the logistics growth but also for the "Make in India" initiative of the Modi government. Also the GDP growth forecast at 8 to 8.5 percent will have a major impact on investor confidence in India's growth. Tax free infrastructure bonds in rail, road and irrigation will help improve investments. Another key indicator is the GST announcement for 2016, this will prove to be the real game changer for the logistics industry especially for the 3 PL services! Efficiency of Ports in Public sector will increase as they are being encouraged to corporatize and come under the companies act , this will also help attract investment
to us, this provides a scope for more informed and acceptable guideline for all the proposed policy changes. These changes are both an opportunity and challenge for users and service providers. The supply chain players will have to understand the long term implications of the same and then put their strategies in place to take advantage of the opportunities that will unfold, as well as competitive challenges that will arise from the competitors. There are three definite directions that will unfold over the next five years. For logistics service providers, a fragmented approach will not work. Scale of operations and future realignment to changing landscape will mean that they must be able to take advantage of the end to end solution seeking companies. They themselves need to draw a roadmap and guidelines to become more efficient and useful. The user companies will have advantage as the infrastructure develops and provides much speedier and efficient reach strategies at low cost.
Infrastructure - driver of future growth What is in the budget that will directly affect logistics landscape? Infrastructure is the major external driver for logistics players. It helps in making transportation easier, faster and cheaper. The railway budget as well as union budget are both high on this. Jaitely has promised a rise in government spending by INR 70,000 crore. This has been supplemented by a National Investment and Infrastructure fund with an initial fund of Rs 20,000 crore. The road infrastructure and railways will get a budgetary support of INR 14,031 crore and INR 10,050 crore. Given the state of infrastructure in India there is a pressing need for increasing public investment. The above steps will go a long way in providing this push by crowding in private investment. India’s investment has been below potential over the last few years. From a peak of 24 percent in the last quarter of 2010, today it languishes around zero. A stalling of projects in infrastructure, mining, manufacturing etc. has been the major factor behind this decline.
Huned Gandhi, Managing Director, India, Air & Sea Logistics, Dachser India Pvt. Ltd.
The stalled projects are prominently in Infrastructure sector and are stalled due to regulatory reasons. Though regulatory reasons remain, the main reasons of stalling of projects in the private sector, as spelled out in the economic survey, are better explained by unfavorable market conditions. The budget addresses these issues by proposing a “plug and play� model for big ticket infrastructure projects such as power plants, airports and road. The beauty of this model is that it obtains all the clearances with regard to environment, land and fuel and then hands over the project to private players. Thus the project is ready to go. This will start with setting up five ultramega power projects and will subsequently be covering other critical areas in Infrastructure. The government intends to rework the erstwhile PPP model, where the private sector was supposed to bear all the risk. Jaitely in his budget speech made it clear that it would now bear a major part of the risk of PPP model and revive private sector interest in Infrastructure. All this will definitely put the | MARCH 2015
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Budget 2015
The decision to increase public investment in infrastructure development including national highways is pragmatic. Better surface connectivity will provide both better speed and cost efficiency for the logistics service provider and consumer alike. The announcement of the much awaited GST too, is encouraging and should make manufacturing more competitive.
Pirojshaw Sarkari, CEO, Mahindra Logistics Ltd.
much needed infrastructure development on right path and help Indian economy take the complementary investment led path. In the road sector the government intends to complete 1 lakh Km of roads already being constructed and adding another 1 lakh Km of new projects. This will have multiplier effect on economy and a huge scope for logistics industry to reach unreached places.
The Rail Budget - A complement Rail has been a neglected mode of commercial transportation for a number of reasons. Railways have grown in India by leaps and bound. But at the same time it has become inefficient and is cracking. Reorganization of railways should start with making it efficient. All railway ministers have gone ahead with populist schemes and over promising development, which has led to the deterioration of Railway’s conditions and finances. Any reform of railways will have to pass through three stages i.e. Lean, Agile and Responsive. The railway minister has taken the 10
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first step to bring efficiency, comfort, and customer service into the fold of existing network. He has promised a whopping investment to make the railways more agile and responsive in future to the needs of newer networks and speedier trains. From an economics point of view, this budget is poised to integrate efficiency with equity and growth. It is also important to see that amidst falling revenue, alternate and dynamic source of funding is important, as Indian infrastructure needs a big push to bring in good growth. The budget has also
paved way for more private sector confidence through agreeing to share a major part of the risk through a proactive PPP model. The freight cost will reduce once the cargo networks get streamlined. The recent hike in freight rates are unavoidable. The digital initiative will also help bring transparency and reduce transaction costs. Companies will find rail route attractive and hence this will rationalize the pricing of road cargo. The new places and new networks that will follow in the next few years will help rail cargo become cheaper like any other country,
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Budget 2015 As many experts and world media pointed out, the basic macro-economics of the Budget 2015 were solid enough and is termed as a reforming one. Some of the interesting points for logistics sector are (i) more spending on infrastructure – less hassles in transportation, I guess!! (ii) Promise of implementing GST by April 2016 – good for logistics industry as it is expected to give impetus for developing innovative supply chain solution helping logistics service providers to consolidate operations. However in the immediate short-term, the increase of service tax percent may cause some impact on some of the outsourcing decisions that may dampen the growth opportunities of SCM service companies. However the aspect of lower taxes on business should bring in some cheer to all the business houses, including to those in logistics sector.
helping firms reduce cost and contributing to make in India story.
National Agriculture Markets Will Alter the Landscape As the government plans to set up Nation agriculture markets, logistics firms can eye a great opportunity coming their way in terms of PPP. With the dismantling of APM act, agricultural marketing will get aligned to demand and supply. Agriculture markets will be operated on basis of market demand. The farmers, till now,
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have been producing wheat and rice based on signals provided by the minimum support prices. This market will see aggregation of both buyers and sellers. The aggregation will take some form of contract farming for largely transaction purposes and will bring transparency into the market. This will increase demand for warehousing and cold storage services. With a good bit of investment allocation, Indian rural markets are poised to grow, and this growth is going to be complemented by the growth of smart cities in a symbiotic way. Rupees 5300 crore for micro
Sattiraju CEO , DELEX Cargo
irrigation, rupees 25000 crore for rural infrastructure fund, a substantial flow for both short term and long term credit supplemented by ambitious soil heath card scheme will enhance agricultural productivity. Indian logistics players will have to be visionaries to see these opportunities and also scale up and invest into rural Agri- logistics for future benefits.
GST will provide the real challenge With the roll out of GST planned for 1 April 2016, Indian logistics players will see a major rationalization of indirect taxes, which will change the supply chain network design. Most companies having 40 to 50 warehouses will need 5 to 7 warehouses. This will optimize India’s supply chain and pave way for Logistics Company to now think of end to end supply chain and invest to provide modern facilities and help India grow. To conclude this budget is an opportunity for logistics firms to look at remaking themselves and provide the necessary strategic push for their own transformation.
Lead Story
Managing Demand Planning in Uncertain Times Dr. Rakesh Sinha delivered the key note address at the Demand Planning and forecasting Forum organized by the Institute of Supply Chain Management and SCMPro. We bring you excerpts from the address. Dr. Sinha spoke about the challenges in managing demand planning in these volatile times. Dr. Rakesh Sinha, COO - Godrej Consumer Products Ltd.
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MCG business has a few unique imperatives. As business leaders we need to understand these imperatives and design our supply chains from scratch, rather than fine tune the supply chain with incremental improvements. There are three imperatives for a FMCG supply chain. The first is availability of the product. And coming from the fact that these are all made to stock products, you cannot manufacture the product after the consumer envinces interest in it. The entire supply chain runs on made to stock philosophy and if the product is not available at the point where the customer is, you have lost that sale. Hence it is 14
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extremely important that the product is available whenever and wherever the customer wants to buy. Empirical studies shows that if there is a stock out, roughly 30 percent of the demand is lost sales. The balance 70 percent you may get, because the consumer may wait for a day or two. Availability is extremely important and this is one metric which shows if the company is growing fast or slow. And in the design of the supply chain, the primary objective should be availability. The second imperative – which is a counter balancing imperative – is the freshness. One might wonder, for a non-food product, why freshness is important,
especially if the expiry date is two years. If you observe consumer behavior at a modern trade outlet, approximately 50 percent of the buyers turn the pack to check the manufacturing date. This was not the case in the traditional shopping venues. Today, since the consumer has a choice, they will pick the product most recently manufactured. Unfortunately, our sales and marketing people do not take cognizance of this. If the product has been made a year ago and still is on the shelf, chances are the consumer will not pick it up. We need to ensure that our products are the freshest when it reaches the consumer. This is conflicting with availability. If you
want to maximize availability, there would be some stores where you will load more. And if it does not move, freshness will be lost. If you maximize freshness, you will face some stock outs. It is a fine balance and you need to design the supply chain to maximize availability and freshness. And that means a fundamental re-thinking on the way we run our supply chain. The conventional supply chain does not maximize freshness, it is designed to maximize availability. The third imperative, as all of us know is your forecast accuracy. As I understand it everyone has a crib about forecast accuracy. The sales personnel often say there was a demand, but…. Unfortunately our process render accurate forecasting difficult. Especially if you measure it at the SKU or depot level. If you measure at a national level, you will have a higher forecast accuracy. But what really matters from the product supply point of view is at the point of supply what was the forecast and what was the actual demand. Forecast in general will be unreliable and we need to design a supply chain system that lives with the uncertainty, the volatility of demand and still manages high level of availability and freshness. That is the challenge we face. We cannot actually estimate what the consumer demand is. In fact, if we are to forecast the demand for a product a week from today, at the depot – SKU level, there will be huge differences. We need a system that considers the demand forecast which is given, but also
continuously adapts the supply chain to what the new market realities are. Most of the supply chains in the FMCG need a radical change. We need to examine if we understand the imperatives on the consumer side, are we serving these imperatives, are we running the supply chains that best serves the consumer? Or do we need to completely redesign the supply chain. If we put all these together, we need a supply chain which is extremely agile. We need to smell demand - like an ant would smell sugar – where it is increasing and where it is decreasing, so that the supply meets the changing demand. It has been observed that at the SKU - depot level, we have sometimes sold five times, or sometimes 10 times the demand, or at some points 10 percent of the forecast demand – not because we have a poor forecasting system, but because the market realities have changed. And we cannot expect that we will anticipate these market changes 45 days in advance. The question that comes up is, in our planning process, why do we start with demand? This is because, unless we have a view on the demand, all other plans – production, material or capacity planning, originates from demand planning. Demand planning is at the core of the firms entire planning process in the short to medium term. For a longer term, strategic planning as to how to shape demand or how to service that demand will take center stage. Typically, in the conventional
demand planning process, the frequency is monthly, is consensus based between the planning and sales personnel, and is based on certain inputs like the past sales pattern, marketing plans, distribution objectives, market realities from the sales personnel, and the annual operating plans. The performance metric used should be actual sales in the current period with the actual sales in the previous period, and not actual sales in the current period against the forecast, because it will bring politics into
If you observe consumer behavior at a modern trade outlet, approximately 50 percent of the buyers turn the pack to check the manufacturing date the forecast. The reality against this sales pattern is the consumer demand pattern undergoes continual change. A new competitor entering the market or a slow down by an existing player can change the demand. The assumption of a constant level of competition activity may be a wrong assumption. Consumer tastes may also change. All these ensure forecast accuracy is low. All these are external factors, nothing to do with the skill of the demand forecasting professional. These are the realities of the profession. | MARCH 2015
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Lead Story
Capacity Planning and Forecasting The nominees for the Demand Planning and Forecasting Forum included a single nomination for the service provider category. However, the jury found the application had merit on a standalone basis and invited TML Distribution company to present its process at the DPFF. SCMPro brings you excerpts from the presentation made my Prem Verma, CEO, TML Distribution Company Ltd. Prem Verma, CEO TML Distribution Company Ltd.
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ML Distribution Company Ltd aim is to transport factory finished vehicles to its customers. For a commercial vehicle manufacturer, this was a first in India. TMLD called it “capacity planning and forecasting.” The goal was to create a blueprint for the transport of factory finished vehicles to its customers. Conventionally, all the OEMs, including TMLD have been transporting commercial vehicles and even fully built vehicles by road. When a vehicle leaves the factory, it is driven up to the stockyard, across the country. From there it would be sold. Some of these vehicles could 16
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travel 2000 km before it is sold. This is a common practice. In developed nations, they transport these vehicles – which is called the primary transportation – by rail, sea or trailers. In the emerging markets, including China and India it is done by road – called own power. The biggest concern was of safety. Keeping in mind the rising concerns about
The second task to marry the load availability with the destination specific capacity
road safety and the move to the practices from developed countries, TMLD decided to innovate before legislation mandates it. The second factor was the shortage of drivers. Tracking of in-transit vehicles is a problem as the transporters are always at the mercy of drivers who are freelancers. The transport of CNG vehicles on own power is a challenge due to the non-availability of fuel stations on the highways. For diesel vehicles, the quality of fuel from these highway pumps are suspect – a fact that was validated by TMLDs own survey. To add to it the current practice by the drivers – including taking
Lead Story on passengers is illegal and the moment you put passengers on a commercial vehicle the insurance cover is not valid. God forbid, anything were to happen during transit, the insurance firm will not pay. This was a big concern for TMDL. Commercial vehicles were most often transported as open vehicles, where the drivers were exposed to the elements, and is an unsafe practice. An alternate is to send chassis by trailer. In India, when it comes to automobile transportation, railways contribute a meagre five percent, movement by sea is not
Tracking of in-transit vehicles is a problem as the transporters are always at the mercy of drivers who are freelancers available. The only option is trailers. Depending on the size of the trailer, two or three vehicles could be loaded. And every trailer has some hydraulics depending on how the loading takes place. This was not without its own challenges – essentially transportation capacity planning and forecasting. The critical factor is the need to retain factory finish quality of vehicles throughout the delivery process. Another issue that comes up is – it is easier to arrange 100 drivers a day, than arrange 100 trailers – especially as these are tailor made for a vehicle type and can 18
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be used on for carrying the vehicles it was designed for. Add to it, the plants are widely distributed across the nation. TMLD wanted go beyond the GPS tracking – we wanted to provide a single window solution to all stake holders. There is also the issue of empty haulage – the trailer which has dropped of vehicles at - say – Cochin either has to come back empty, or be diverted to the nearest factory for fresh load. If comes back empty, the project is not viable. These assets are expensive. Compare it to the current practice – one can hire 50 drivers, pay them their charges, and be relieved of any further expense. In the case of the trailer, it has to come back. The ROI is based on the loaded running it is can do. When the numbers were crunched, it turned out, this will cost three times the cost of own power transport. But the management was sure it wants these trailers – due to quality and safety concerns, when transported own power. The most critical factor is the transit information. TMLD created a dashboard by which the transit information was available to all stakeholders via a portal. The second task to marry the load availability with the destination specific capacity. A driver of a trailer cannot leave it mid-way. If the driver is asked to move vehicles from a factory to another destination, a roundtrip which may take a week, he may refuse. Which means, as soon as a trailer
leaves for a run, which may take 10 days, we need to plan for the return load somewhere closer to the place of origin. This was a challenge. Failing to do so would push the cost up five times. The portal will display the details of the driver and the likely date of arrival. The planner then knows that she has to prioritize a load for this driver within a short radius of the origin. In case of Chassis carriers used for CV vehicles fitted with telematics devices, automatic location Data is updated in Portal twice a day. Trailer with GPS sends alert at entry and exit of geo-fence drawn around stockyards /plants. Similarly, exit alert updates marching of the trailer and entry updates reach status in Portal. Unlike the GPS data which tracks the vehicle movement, TMLD wanted data about the place of origin of the driver and the destination he wants to go after delivery. TMLD developed an option to book trailer for return Load. On completing half of the transit time required for delivering current load, trailer will be displayed for return load booking. Once trailer is booked for return load, intimation mail is sent to transporter concerned. We realized that we need an end to end alignment – and not a piecemeal approach. At TMLD we call it transportation capacity planning and forecasting. This has led to other benefits like emission reduction by 60 percent and we plan to further reduce it by rail or waterways once GST kicks in.
Tackling Variability and Forecast Performance through S&OP In these uncertain and volatile times, forecasting is often questioned. Economists are often accused of harping on a convergence of demand and supply. As the industry comes to terms with doing business in an uncertain environment, there is a way ahead to tackle the variability and the forecast performance through sales and operations planning. SCMPro brings you excerpts from the address by Dr. Rakesh Singh at the Demand Planning and Forecasting Forum.
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he ultimate goal of the industry is to react to the market immediately so that we do not lose any sales or suffer stock outs, or we have surplus stocks, and the supply chain is loaded with the right product, to the right place at the right time. This is where the world of supply chain and forecasting is converging to. JIT, Quick Response. Manufacturing Resource planning are tools to meet the volatility in the demand processes, align supply to demand reduce inventory along the supply chain pipeline. One question that arises is, Quick Response and JIT is reckoned to be a reactive process of meeting demand at any point in time. What happens when there are disruptions, there are open windows, and also there is a dynamic change in the consumption pattern of the consumer? Are organizations geared up to build these kind of capacities and inventory to fulfill
demand either through JIT or a Theory of Constraint based replenishment process? I say this because, in a country like India having diverse geographical and demographic segments, unlike the urban markets where reach is relatively easy, rural markets are black box. We need to ask ourselves – what is the best structural option to reach the rural markets. Most Organisations use the route of superstockist. This poses a challenge, where we need to move beyond the super stockist and get relevant data for forecasting. In a fragile market with un-even development, where you cannot see your schedules and part, there is trouble. The variability of
We need to ask ourselves – what is the best forecasting model for our supply chain
demand leads to a high price points for a low price point market. Under these challenges, what is the right forecast for your supply chain? Borrowing from an article from the Harvard Business Review, one needs to define the domain and territory of our uncertainty, where the degree of uncertainty in the product defines the supply chain model. I believe that the whole debate can be simplified. There are different segments in the supply chain which need different intervention in terms of demand planning, and if you analyze the traditional supply chain in India, we find that one of the methods to classify segments is to see the patterns in the data and past and immediate consumer data or maybe even in a time series, that shows a peak to average in the model selected. If there is a peak to average in the model with a volatility of one to 10 percent, I think life is simple. Even for a | MARCH 2015
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Lead Story FMCG firm, in some territories this will be a reality. Can we reduce the uncertainty by understanding the static demand for the product that we have and planning it better? If your supply chain is efficient and you have a certain demand, the best technique to use could be moving average. We then seasonalize it or de-seasonalize it to get a forecast. This works well for a start with, rather than try to transform the entire supply chain into a single model. There are a number of competitive variables that disrupt
There are principal macro-economic parameters that need to be watched and integrated into your supply chain forecasting the market. And there are some not so disruptive implied uncertainties that are in the markets primarily because of the nature of the economy we have. We need to bring these macroeconomic variables into the causal demand. We also need to reduce the implied volatility coming out of the supply chain arising out of the number of varieties, multiple channels used, the increased lead times, and service levels that need to be increased to fulfill demand. And within this implied uncertainty, how does the macro-economy 20
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affect the firm. The best way to achieve this is to use a judgmental forecast out of the macro-economic parameters that affect the business. Whether it is sourcing oil seeds for a soap company or sourcing any agricultural commodity, including flour, how do we move ahead? There are principal macro-economic parameters that need to be watched and integrated into a simple route sampling. These kind of volatilities also need to be captured. The certain demand and the causal forecast. Causal forecasting should also include the interventions by the firm in terms of promotions and discounts. The competitive pressures that is visible to the demand planner needs to be integrated into the planning model. Four years back at an Automotive Logistics meet, a speaker had an interesting presentation which predicted a linear growth of the automotive sector over the next five years and suggested that the auto companies need to ramp up demand by three times. It was the period where we believed India was de-coupled from the world. I clearly indicated that the current account and Fiscal deficit were rising and the GDP and SDP was going down! Current account deficit was ballooning and GDP will slow down. Planning ignoring the Macroeconomic trends will create macroeconomic bull whip. Thus we need to take into account certain basic structural
macro-economic parameters to understand this phenomenon. These are disruptions that can come up in a big way. It is easy to model this through any predictive analysis. A book on Big Data I read says we use regression and multivariate analysis. With technology available to us, the overall interpretation of the data is simple predictive analysis – a method that has been often used, but ignored in demand forecasting. This is why we need to a causal model. Finally, we need to accept that a large number of the products cannot be forecasted. We need specific interventions to identify these constraints and replenish the supply chain in the shortest possible lead time with a daily forecast using point of sale data, or data from the retailer where POS data is not available. Replenishment is good for segment which cannot be forecasted. This also requires postponement and ability to react to the market with shortest lead time. Forecasting is not dead. Forecasting has changed its dynamics to include collection of data from the market – which is consumer analytics, which will define the uncertainties in demand at a particular outlet. Organisations can then plan their forecasting model based on various segments. There resides multiple supply chain in the organisation and forecasting is just one of the possible solutions to supply chain performance.
Lead Story
Sales and Operations Planning - the core of a Success Story Hindustan Unilever defines the business complexity through three lenses – geography, product and time. In a presentation at the demand planning and forecasting forum in Mumbai, Ashish Gujarati presented the sales and operations planning process in HUL. SCMPro brings you excerpts. Ashish Gujarati, General Manager Planning, Hindustan Unilever Limited.
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UL defines its business through three lenses – geography, product and cluster. Geography is around national, branch, cluster, state and depot. I would like to call out here the cluster – which HUL introduced six months ago. Apart from the national, branch, state and depot. Cluster is a concept where HUL has introduced cluster heads, a level lower than the branch. HUL now has 14 COO’s who are running these clusters. These clusters have been divided into homogenous units. The reality is, in India, if you travel a 100 kilometers, the consumption patterns, and the elements which drive consumption substantially change. Therefore to 22
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reflect the growth of India in terms of these disparate entities that exist in India, HUL realized four branches mean nothing. Each of the 14 clusters defined become a logical entity. Product includes category, sub category, brand, brand variant base pack and CBU which is the lowest level. Time dimension is the year, quarter, month and a concept called TDP – a ten day period. This is in lieu of a week. If a month is made up of 30 days, HUL has three TDPs. In terms of complexity of numbers, and because it is based on the FMCG sector which is very dynamic and volatile, the numbers are extremely large. HUL has 50 plus brands, with 2100 plus SKUs,
selling 260 million cases across 63000 combinations through 30 depots. In the S&OP process in any organization, it is as much of the hardware of the technical skills you have in generating baselines, the data science used. It is really around managing the processes and the excesses. Because in the world of FMCG, there are a number of exceptions, there are so many decisions that are taken which are fluctuating in line with competition, in line with the variables that affect performance. What you really need is a culture and software on how this resides, beyond the hardware of how a S&OP forecasting should be run. Therefore HUL has classified
these around three simple tenets. There is a process in which the S&OP will be run, there is a simplification agenda on constantly questioning is this process simple enough to be understood by everyone in the organization, because that is the only way you can rally everyone in the organization around the process, and most important – a concept which we call fly-by-wire. Which is reducing human intervention in the elements around the process, or the elements around what we have in generating a demand plan or managing exceptions. HUL aims to keep the elements as automated as possible, as systematic as possible and sweat the assets in terms of generating every output. But keeping the element of human judgment in the process. However, if a process can be automated, do it first, before the element of human judgment can kick in. Over the past four years or so, HUL has created a process of an S&OP health check – which the management wants to see – not just the KPI’s, or numbers. But how is the process working. Is the conversation happening where all the stakeholders who need to be present are there, are the decisions getting closed, are the objectives defined are really being met – be it inventory, or any other parameter from the business side, and the quality and comprehensiveness of decision making and the inputs that go into it. It measures all these. And we have upped our numbers from the late 80’s to the 95 percent plus. A couple of things which are linked is the governance
mechanism, because we have a certain amount of complexity and uncertainty in the decision making. And if a brand manager needs to know the recency behavior is going to play out in a specific manner, what is the S&OP guideline that will accommodate that exception. That kind of a guideline is defined at HUL through the governance mechanism. HUL has a concept called the S&OP steercom, which is run like a neutral body by someone outside supply chain, who is the CFO, who provides the outside in view – almost like a maker checker to see if the decisions and the outcomes HUL is driving, are they reflecting the largeness of the business objectives. This has brought in a great amount of flexibility in our processes, getting sharper rule to accommodate nuances of brand performance, category performance, the sales team elements are all anchored within the steercom. This has given HUL the confidence, since there is a body which understands this as a cross functional team. While it is headed by the CFO, every part of the organization is represented in the team. This team speaks about the issues, and finds solutions which can then become the rule to the operators of the S&OP processes. Simplification is about simplifying everything that HUL does, and from the S&OP perspective is about reducing the number of SKUs HUL can operate with and questioning the viability of the SKUs HUL has from a marketing lens, from a category lens and from a Customer Development (CD) lens. HUL has reduced 31 percent of its SKUs in
the past year, while delivering 10.5 percent growth. Segmentation is an aspect of simplification. HUL was doing the ABC classification – an approach which has limiting returns after a period of time. In a diverse portfolio, ABC does not make sense, because there is a region, category and CD element. What is a “A” in one part may be a “C” somewhere else. HUL realized it needed a segmentation of the portfolio that reflected the business needs and objectives and classifies them from the supply chain response. HUL has classified its portfolio into Lean, Agile and
HUL aims to keep the elements as automated as possible, as systematic as possible and sweat the assets in terms of generating every output Responsive. This determines the procurement, production, distribution and demand planning functions. If the portfolio is a lean model, then the demand planning will focus on driving down the volatility. The distribution will develop a fixed cost network. This defines a business model and not just a supply chain response. Because it is a Lean portfolio which requires the lowest cost delivery for a business objective and it also translates into what HUL should drive as a supply chain in each part. And this is the core of the HUL success story. | MARCH 2015
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Celebrating DPFF 2015
'WINNERS OF THE AND FORECASTING S.K. Krishnan receiving award for Outstanding Achievement in Demand Planning and Forecasting
Hindustan Unilever Limited team receiving 'Best Demand Planning and Forecasting Company 2015' award.
Tata Motors Limited team receiving the ďŹ rst runner-up award for 'Best Demand Planning and Forecasting Company 2015'
Videojet Technologies India Pvt. Limited team receiving the Second runner-up award for 'Best Demand Planning and Forecasting Company 2015'
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DEMAND PLANNING AWARDS 2015' TML Distribution Company Limited receiving the award for 'Best Demand Planning and Forecasting Company (services) 2015'
Vijay Wadhwani from Relaxo Footwears receiving award for 'Best Demand Planning and Forecasting Professional 2015'
Deepak Bartwal from Godrej Consumer Porducts Limited receiving award for Runner-up - 'Best Demand Planning and Forecasting Professional 2015'
Winners of the Demand Planning and Forecasting Awards with Team ISCM and SCMPro.
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YSCP
How visible is your Supply Chain? Now-a-days the term “Supply Chain” might be one of the most fascinating buzz word of any industry. In many organizations huge amount of the budget is allotted to make the Supply Chain of the organization more robust and competent. SCMPro brings you the views of Panchanan Mishra - a young professional wishing to join the SCM profession - on Supply chain Visibility.
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Panchanan Mishra, Greatlake Institute of Management, Chennai
hough a lot of strategic insights have been developed by a lot many Supply Chain professionals in this regard, one of the foremost strategy could be to impart your supply chain a certain degree of visibility or transparency. So what do I mean here by “Visibility or Transparency in the Supply Chain”? There is nothing new in this concept but I thought of presenting the same in a more simplified way that will help others to understand with more clarity. Let us understand this through a simulated scenario. Have a close look on the above diagram. For a company “X”, let us assume the business model runs in the above way as mentioned in the diagram. Let me explain the steps involved with a bit more clarity.
Step 01: Assume the product in business is a Pull product and hence the business is demand driven. Hence the trigger starts when demand arrives from the customer to the category manager (CM) of that 26
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company. Note: There might be variety of categories / SBUs in an organization. The Category manager (CM) is responsible for the profitability of that respective category. Even one category might deal with many products.
Step 02: Now the CM informs the respective procurement team of the company about the demand details (Qty. demanded and demand location etc.).
Step 03 & 04: The procurement team now coordinates with the manufacturing vendor (Manufacturer of the product demanded) and simultaneously informs the same to the Logistics dept. with all the required info.
Step 05: The logistics dept. now coordinates with the 3PL (3rd party Logistics vendor) regarding the Logistics possibility keeping the pickup location
3PL-Logistics Vendor/s 6 7
Manufacturing Ventor/s Or Supplier/s
3
Customer / Demand location 1
2
Category Manager
5
Logistics Team
Procurement Team 4
(Manufacturing vendor location) and demand location in view.
Step 06 &07: The 3PL vendor now picks up the material from the manufacturing vendor & delivers the product at the demand location. The whole process might seem simple here in this exemplified scenario. But imagine the same scenario runs for the case where there are few ‘00 3PL, few ‘00 manufacturing vendors, few millions customers (Demand locations) and moreover the whole operation is run by few ‘000 employees & few category managers are responsible for the profitability of those few categories of that company. Imagine how complex the diagram will be & how complex the Supply Chain might look like in this scenario.
In fact most of the retail business supply chains (irrespective of the types of industries) have these many complexities built around their respective businesses. More the complexity of the supply chain, more the information it associates with itself. These information might be of various types i.e. which product is present in which part of the lengthy supply chain for how many days, why it is not reaching its demand location in time and why it is contributing to lowering the efficiency of the supply chain of the business and many more. In such cases, don’t you think all the stakeholders of the Supply Chain should be aware of all these information all the time, so that the respective department (i.e. Logistics dept. or Procurement dept. of that
Category) can take immediate action in time to make the supply chain more agile and responsive? This is exactly what I define as the “Visibility in the Supply Chain”. From my conceptual understanding, to make a supply chain of any business more competent, definitely there is a requirement of competent strategies. But before framing these strategies, it is even more important to make the supply chain more visible and transparent, so that strategies can be better executed further. There are various other ways to turn this visibility concept active, which might involve extensive application of IT services in the organizations. Keeping that application aside, let us concentrate more on the implication of this concept in todays’ supply chains. | MARCH 2015
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Feature
The Criticality of Managing Supply Chain Energy Efficiently Companies today are being energy efficient. There is considerable awareness about going green and reducing carbon footprint. However, one aspect that they might be overlooking is the energy spent in the various links of the supply chain. If one can manage supply chain energy efficiently, carbon footprint reduces drastically. We bring you the perspective of Shaik Asad Parwez – Head, Supply Chain, Racold Thermo Ltd.
O Shaik Asad Parwez Head, Supply Chain, Racold Thermo Ltd.
ver the period there has been a shift in the perspective of the supply chain process. The focus has been shifted from reducing cost to reducing carbon footprint. The modern day manufacturers are looking at ways to reduce carbon emission. They have a broader target of reducing cost using energy efficiently, reducing wastage having better productivity etc. In coming years if the organizations think out of the box and in collaboration with the supply chain of the other organization, then there are opportunities of reducing the carbon emission using the best technology, generating better profits.
“Piggy bank” issues: Where and what to save? In supply chain there is a great scope for promoting energy efficiency, reducing costs and 28
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decreasing the environmental footprint of consumer goods. The energy and commercial efficiency can be achieved by engaging leading companies to identify high quality suppliers. There can be a single supplier for many companies and he would do the manufacturing activity of all the companies under the same roof. The supplier will follow the SOP for each and every company as defined by them. This will create sector-based collaborations for improving supply chain energy efficiency by assembling groups of peer manufacturer within a supply chain and using benchmarking and process capability analysis and best practice sharing to identify and improve energy efficiency and industry competitiveness. The cost of the goods will decrease as the supplier will get the benefit of bulk purchasing of raw material, 100% utilization of the plant capacity and energy to run the plant, elimination of wastage etc. On the
other hand companies can also reduce the carbon footprint by initiating certain practices on the distribution front. Encourage vehicles run on CNG for transportation. Use of waterways/rail transport where ever possible. Pollution norms of the vehicles should be checked before loading the vehicle so that the transporters adhere to the pollution norms. Ensure the optimum utilization of vehicle load so that one can save on fuel and less pollution for the environment. Under utilization of the vehicle should be avoided. Car pooling to be encouraged among employees. Today, most of the companies operate out of dedicated facilities and have a dedicated logistic supplier taking care of operations. The companies can also look for 3PL suppliers who can handle multiple account from the same facilities hence the concept of shared resources can be utilized by doing so the company can reduce the overall logistics cost as the
warehouse facility, manpower, transportation, electricity are on sharing basis and this will also reduce the carbon footprint.
Tips on energy saving Organizations need to list down their desire of reducing energy costs through supply chain management. They also need to be aware of the regulations to follow and permits to take to ensure that all personnel involved in the process of supply chain management are following steps for efficient energy utilization. These are some of the initiatives we at Racold Thermo take up to ensure the reduction of electric energy usage: Provide sufficient ventilation in the plant Introduced air ventilators for effective exhaust system. Turbo vents should be used in plant / warehouses to keep the internal temperature cool, and the use of exhaust fans which runs on electricity should be discouraged. Use transparent sheets on the roof for proper sunlight
Use induction lamp instead of MHL etc. The imported materials generally come in shrink wrapped in polythene sheets, one can educate the source vendors about the hazards of polythene and encourage them to use straps or paper /board sheets. Companies can use paper tapes in place of BOPP tapes. Writing / scribbling pads can be made out of the paper stationary wastage. The companies should encourage paperless office. The re-use of cartons/envelopes should be encouraged. In most of the companies the invoice stationary have multiple copies and they have carbon sheets in between, one should introduce self carbon invoice stationary resulting in less pollution. Employees should be educated to switch off monitors when not in use. In the warehouse compounds trees should be planted in the unutilized place. Solar cells and solar related products should be used for lighting/getting hot water in the plant /warehouse/office. There are several leading companies that follow a regulated process to ensure an energy efficient supply chain – keeping those in mind, companies must follow suit. They need to see the larger picture – an energy efficient process and organization is loved by the people, and with the saving costs operations can be improved. It is a win-win situation.
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Feature
Moving Towards Demand-Driven Coal Logistics Coal, the principal dry bulk cargo commodity handled at Indian ports also makes up for maximum share of the total freight handled by the Indian Railways. With coal demand now expected to rise by 6% to 787 million tonnes (mt) during 2014-15, as per Coal Ministry, coal imports are likely to further touch 200 mt, going up from 140.57 mt in 2012-13. This coupled with the hinterland movement of about 250-300 mt coal by railways – poses complex and formidable logistical challenge in making coal available at right time, at the right location and at minimal cost across the country.Vijayendra Acharya, Head of Research at J.M.Baxi & Co brings you an insight. Article courtesy JMB Tidings.
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arge volume of coal movement in India is for thermal power plants with significant share also comprising imported coking coal and cokefor the Steel and other manufacturing industries. The spatial distribution of plant capacities of coal users – both of thermal power plants and steel – thus play a critical role in how coal logistics is organized and has evolved in India, especially in how imported coal is made available to the user industries from coal receiving seaports. Over past several decades bulk of the thermal power, steel, cement capacities in India were set up in vast under-developed hinterland locations - that were closer either to coal mining areas or where coal could be transported by rail. However, with domestic mining of coal and ores
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progressively falling short of meeting growing requirement of the industry,coal imports have became critical to meeting the demand-supply gap. There is also a concurrent trend towards relocating newer thermal power and steel plant capacities near proximate seaports to take advantage of imported coal. The government policy sanctioning of setting up of ultra mega power plants (UMPPs) has thus favored deep-draft seaport locations like
Krishnapatinam, and Mundra, which are capable of handling large cape parcel sizes. However despite certain advantages in fuel cost and use of super-critical technologies scaling up plant sizes and operational efficiencies, the logistics challenges have far from diminished. Increasingly, as domestically produced coal is now moved over longer distances from the mines to plant locations and added transportation costs is making coal
DISTRIBUTION OF THERMAL POWER PLANTS & CURRENT THERMAL COAL CONSUMPTION * Regions Capacity (MW) Coal Consumption (Million Tonnes) Northern 33,423.50 120.32 Western 51,044.51 183.76 Southern 25,782.50 92.81 Eastern 24,077.88 86.68 North East 60 2.16 Total Coal-Based 134,388.39 483.79 *Assumptions: The power plants typically consume 3.6 tonnes of coal per every megawatt of power produce, while it takes 450 gms of coking coal to produce 950 grams of finished steel.
costlier and often less competitive to imported coal. Especially, with imported thermal coal being now used not only by coastal power plants but also by hinterland thermal power plants, the hinterland coal logistics has grown increasingly complex. Coal India’s own plans to import around 5 mt of thermal coal (to supplement its supply obligations under Fuel Supply Agreements (FSAs) ) is likely to further add to logistics complexity. Focus of attention in operations can be seen shifting from coal supply points to how effectively coal demand clusters will have to be managed. Several large private power plants are now coming up with new logistics solutions, like setting up dedicated conveyor lines, port-to-plant captive railway sidings etc.The common user rail networks are mainly used for carrying domestic
coal produced by Coal India. The need to adapt to demand-driven logistics for coal is becoming increasingly critical to cut down transit and delivery time and meet the desirable inventory requirement. Domestic coal is also moved on the coastal shipping route with the coal mined in Central and Eastern India being loaded at Haldia and Paradip ports and then discharged at Ennore and Tuticorin ports for thermal power plants of Tamil Nadu. Lately there is also coastal transshipment movement of about 7 million tonnes of coal received at ports like Krishnapatinam and Gangavaram and shipped to Mundra in smaller vessels. Also with supplementary use of low ash imported coal to reduce carbon emission, more of imported coal is now transported to hinterland power plants.
Coal Demand-Supply Dynamics Thermal coal demand and supply has following characteristic features: With India’s plans for new power capacity (75,785 MW of coal capacity projected by 2016-17, i.e. end of 12th Five Year Plan), focus is on super critical Ultra Mega Power Plants (UMPPs), which get their supply of imported coal directly from overseas sources, while pit-head and other hinterland power plants – will use domestically produced coal, through FSAs with Coal India Ltd. Domestic coal production (despite anticipated growth in the coal mining capacity) would still run short of meeting current and future thermal coal demand. While shortfall will be met through imports, strategic focus of Indian companies, including | MARCH 2015
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Feature Coal-Based Thermal Power & Steel Capacities, Coal Consumption Projections* POWER SECTOR (Thermal Coal User) POWER SECTOR (Thermal Coal User) End of 11th End of 12th CEA assumption @ 90% Plant Load Factor (PLF) Plan 2012 Plan 2017 Installed Coal-based Thermal Power capacity (MW) 134,388 210,173 Additional Power Capacity NA 75,785 Current Thermal Coal consumption 417.60 682.00 incl. imported thermal coal (in Million Tonnes) NA 264.80 Additional Thermal Coal Requirement (in Million Tonnes) 60 2.16 STEEL SECTOR (Coking Coal User) End of 11th End of 12th Total Coal-Based Plan 2012 Plan 2017 Installed Steel Capacity (in Million Tonnes) 89.00 140.00 Additional Steel Plant Capacity (in Million Tonnes) 51.00 Current Coking Coal Consumption (in Million Tonnes) 43.20 67.20 Additional Coking Coal requirement (in Million Tonnes) 24.00 Note: Aggregate coal demand and consumption estimation are based on assumptions of ash content and thermal efficiency of coal as also Plant Load Factor (PLF), a measure of utilization of rated power plant capacity. The projections above are drawn from reports of the Central Electricity Authority (CEA) and Joint Plant Committee (JPC), Ministry of Steel.
Coal India is to go for overseas coal mine acquisitions and import coal to supplement shortfall. On the supply side, constraints in scaling up domestic production of coal and overcoming constraints of supply chain has been sought through policy of allocating captive coal mining blocks to actual users of coal in the private sector. With regular movement of coal between India and its overseas suppliers in Indonesia, South Africa and Australia (both at the East and West Coast ports), Cape and Panamax vessels are being used enabling larger parcel-size movement under long-term Contract of Affreightment (COAs).
Meeting The Logistics Challenge India’s coal economy faces 32
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challenges with respect to available infrastructure and networks. Bottlenecks in domestic transportation of coal by rail–which accounts for movement of over 75% of domestic coal – is seen in lack of adequate rail networks, shortage of rake capacity and problem of timely availability of empty rakes at loading locations. Consequently, poor coal evacuation from pit-head mines and seaports to various consumption points has resulted not only in substantial increase in logistics costs but also costly delays in meeting the critical demand from power plants. Power plants usually work on a coal inventory of 7 to 15 days. However, despite this norm, a majority of power plants suffer due to low inventory levels. Presently, rake requirement of CIL
alone stands at 192 per day (one rake constitutes 59 wagons), while availability is far less than this. Besides while domestically produced coal is allocated to users on the basis of coal linkages, the corresponding rail linkages to coal users are however, provided by the Ministry of Railways, which decides on the basis of traffic demand and optimizing revenue. Synchronizing the coal and rail linkages is thus among one of the key logistics challenges. The railways are still recovering from problem of imbalance in bulk freight movement due to sharp decline in the port-bound movement of iron ore, compounded by one-way hinterland movement of coal imports. This freight imbalance is giving rise to intractable problem of re-positioning of empty rakes, which need to be moved over long distances without freight. While increasing rake capacity, adding on new rail lines are longterm solutions, there is an urgent need to tweak the coal logistics also through better inventory planning by end-users of coal, proper scheduling of their railhead operations and measures to cut down the idle-time for rakes, adopting other alternatives for coal movement etc. Taken together these initiatives can transform the coal logistics chain from being supply-centric to becoming more shipper-centric and demand-driven. Integrated bulk logistics solutions for making coal available power plants, steel and cement plants is indeed the need of the hour.
SME Corner
The SME challenge - Supply Chain Resiliency India Inc has woken up to the fact that the future belongs to the firm with a more resilient supply chain – not necessarily the best product, or the best price. Supply chains ensure that the right product is available at the right place when the customer walks in. If the best product is not available, the sale goes to the second best. And SMEs too need a resilient supply chain. Girish V S, the Editor of SCMPro examines the contours of how SME’s can in-build resilience in supply chains.
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or years now, we have been speaking about the contribution of SME to the nation – that it accounts for 40 percent of the GDP, provides for 45 percent of employment outside the agriculture sector, and also accounts for around 40 percent of the export earnings. The same is true for the Asian region. According to a study by APEC, “SMEs account for 97.69% of total business, 41.2% of GDP and provide 63.6% of employment in the Asia Pacific region. Thus, SMEs plays a role of driving force for regional economic growth. However, this region experienced 70% of global nature disasters, causing supply chain disruptions and severely affecting SMEs. SMEs are more vulnerable to disasters compared to large enterprises due to their concentration of business activities and less awareness and limited access to disaster risk information.” These natural disasters focused 34
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attention on the need for a business continuity plan for the SME’s. Unlike the larger firms, SME’s lack the ability to invest in creating resilience in their supply chains. Quite often, they are not able to assess the risks to their supply chain, let alone devising risk mitigation plans or work around. The COSO Enterprise Risk Framework is an excellent model to assess the risk embedded in an enterprise. However, due to the lack
of formalized process frameworks, SME’s are not the best candidates for an ERM solution. Unfortunately, the lessons for best practice in risk management have all been developed based on the experiences and needs of large enterprises. These practices are not the best fit solution for SME’s. To further complicate matters, the governance frameworks these models favor are based on the western firms. Such governance
models seldom fit an emerging market scenario. There are two challenges that a risk practioners in India faces – one to adapt the West centric risk governance and frameworks to Indian conditions. The second – to adapt such large corporate frameworks, which assume some governance and organizational structure to suit the chaotic structure of SME’s.Internal resistance, lack of awareness, lack of formal organizational structure and misalignment of priorities are some of the challenges that SMEs face. Unlike a large enterprise, where an army of trained risk management professionals slice and dice data to identify opportunities to mitigate, transfer or avoid the risks that face their organization, SME’s often lack the ability to even define the risks they face, let alone collect and analyze data. Neither do they have the financial wherewithal to engage consultants who can do it for them. Hence to an SME, risk management may boil down to buying an insurance policy. They do not see value in investing in people or systems that will help them mitigate or avoid risks, as often they do not receive any tangible pay back on the insurance premium they pay. To begin with, even before we examine the frameworks and the modifications, we need to have a
correct understanding of the terms “risk” and “risks”. According to Leitch (2008), risk is a measure of the importance of some certainty, whereas risks describe events that might happen.A second prerequisite for the successful development of risk resilience within SMEs is to understand itscompetencies; hence the need for prudence in the identification of a firm’s risk culture.Rarely do we realize that risk management is too serious matter to be left to a few employees. Every employee of the company has to develop an understanding of the risks in the domain of her operations. The five questions suggested by the Asia Pacific Economic Cooperation is a logical starting point in building a risk resilience framework. The five questions suggested by APEC are: Q1: What is your company's disaster scenario that might lead to bankruptcy? Q2: How soon does your company have to recover to survive from a disaster related disruption? Q3: What are the critical resources whose availability determines the life or death of your company? Q4: Within 5 to 10 years, what kinds of disasters and accidents are most likely to impact you, potentially triggering a worst-case scenario?
Finding answers to these questions is the first baby step in the process of risk resilience for an SME.Researchers have identified a set of seven critical success factors that can be used as guidelines on howto increase the effectiveness of risk management procedures: commitment and support from top management, communication, culture, information technology (IT), organizational structure, training and trust. We need to remember that the first signs of will be spotted – not by the CEO or Owner, but by an employee. How the employee deals with the information decides how quick the response will be or how resilient the firm will be. A very common case study cited (from a large corporate perspective) is the Nokia – Ericsson response to a fire. In an incisive article “The Fire that Changed an Industry” Amit Mukerjee writes about it. On March 17, 2000, a lightning bolt struck a high-voltage electricity line in New Mexico. As a consequence a fire broke out in a fabrication line of the Royal Philips Electronics radio frequency chip
Sample Risk Matrix Consequene Likelihood Almost certain Likely Moderate Unlikely Rare
Insignificant Moderate Moderate Low Low Low
Minor High Moderate Moderate Low Low
Moderate High High Moderate Moderate Moderate
Major Extreme High HIgh High Moderate
Catastrophic Extreme Extreme High High High | MARCH 2015
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SME Corner manufacturing plant in Albuquerque. The firewas put out in 10 minutes. Four thousand miles away, at a Nokia plant outside Helsinki, a production planner who was following a wellarticulated process for managing chip inflows from Philips failed to get a routine input he needed from Philips. He informed the plant’s purchasing manager, and again following an established process, they passed on word of a possible problem to the top component purchasing manager. Meanwhile Phillips called Nokia to inform them of the fire and the disruption. Nokia immediately put in place a mitigation plan. A few hundred
update. While Ericsson slept, Nokia acted. And that made the difference. The starting point of building risk resilience in an SME begins with identifying the risk appetite. There are many definitions of risk appetite - Risk appetite has been defined as ‘the level of risk that an organization is willing to accept’, ‘the amount of risk an entity is willing to accept in pursuit of value’ or‘The amount of risk which is judged to be tolerable and justifiable'. There is no one single figure that can be used as a benchmark. Risk appetite is a function of the experience, maturity and the
There are two challenges that a risk practioners in India faces – one to adapt the West centric risk governance and frameworks to Indian conditions. The second – to adapt such large corporate frameworks to SMEs miles away, executives at Ericsson also got a call from Philips. Until this call, Ericsson’s planners and managers had not sensed any discrepancy in Philips’ performance. As such, its management had no reason to disbelieve Philips’ explanations. They certainly did not perceive a need for concern or stepped-up action. The result - Ericsson reported divisional annual losses of $1.68 billion, a 3% loss of market share, and corporate operating losses of $167 million! The difference was the employee of Nokia who acted when he did not receive a routine 36
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processes that the company has. A company which is process oriented, and has empowered its employees can have a larger risk appetite.
The Role of the Banks One of the significant sources of risk to a bank emanates from its lending portfolio. Normally, banks treat SMEs as a high risk entity. A simple way in which a bank can reduce the risk of its lending portfolio is by strengthening the borrower. Banks have a large pool of trained manpower who are able to understand and analyze risks as they arise. Since SMEs. By
their nature of business, SMEs do not have the ability to understand the complexities of risk mitigation.A bank can step in and fill in that gap. This works well for the bank – it will find the risk profile of their borrowers improving. In India, State Bank of India has set up a Consultancy Services Cells (CSCs) to support the SME sector. CSCs were originally set up for serving two major objectives - Assisting the operating wing in taking credit decisions by undertaking techno economic feasibility studies of projects and, more importantly and providing counseling support to entrepreneurs, as well as, conceptualizing and implementing various schemes and programs. Under the CCS, SBI conducts programs for entrepreneurs on management aspects of SMEs; organizes Entrepreneurship Development Programs and counsels entrepreneurs on their new/ expansion/ modernization programs. In keepingwith this approach, Mrs. Arundhati Bhattacharya,the Chairperson of SBI is on record that the bank has "…. consolidated and changed its entire product suite for SMEs.So, all the products we have brought in now are risk-mitigated. We are going to grow in SME in a very different manner"
SCMPro Classroom
Supply Chain Risk Management At 8.00 PM on the 17th of March 2000, a lightning struck a high voltage electricity line in New Mexico. This caused a minor fire in a chip fabrication factory of the Royal Philips Electronics radio frequency chip product – which was put out in ten minutes. As a result, one of the customers of the firm – Ericsson saw its revenues fall 52%, total assets about 30%, and number of employees 52%. The company never recovered. Clearly the age of Supply Chain Risk Management was born. Editor of SCMPro, Girish V S, brings you a series on supply chain risk.
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isk is defined as the probability or threat of damage, injury, liability, loss, or any other negative event caused by external or internal causes, which may be avoided through preemptive action. The Supply Chain Leadership Council defines Supply Chain Risk Management as "The practice of managing the risk of any factor or event that can materially disrupt a supply chain whether within a single company or spread across multiple companies." As we globalize, firms have become
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increasingly dependent on suppliers and customers across the globe. This has increased the possibility of supply chain disruptions manifold. Supply Chain Risk Management will help firms withstand adverse events and disruptions, and provide uninterrupted service to their customers. Any disruption in supply chains can have disastrous effects on the global economy, the firms and as in the above example prove debilitating to a firms existence. Another factor that has increased the risks to a firms supply chain is the outsourcing trend. As firms
increase their outsourcing, it introduces additional uncertainty. Managing uncertainty in an outsourced environment is a function of supply chain risk management. Traditionally, supply chain risk was often the result of inadequate visibility across the chain, lack of market and supplier information, poor inventory management, collaboration, and inefficient coordination all multiplied by inadequate infrastructure, skills, resources, and technology. 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 firm 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 firm. As a starting point, the risks need to be classified along the four quadrants – high risk- high impact, High risk – low impact, low risk –high impact and low risk low impact. This classification will allow the supply chain manager to accurately assess the firm’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 firm 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 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 firm. The corrective action plan should cover the following: Classification of risks Compensating / Mitigating
Controls Responsible Manager Target Date for development of the corrective action plan Whether a new control issue will emerge from implementing the control The residual risk in the system post the corrective action plan. Some of the processes for the firm to develop plans are: Inventory management policies including the impact of abandoning or adopting the existing inventory management policy. 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. Redundancy initiatives - the firm holds additional inventory to take care of supply disruptions. Development of information systems - the deployment of IT systems can help the firm track problems from across the supply 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. | MARCH 2015
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SME Spark
The Only Paradigm Do Not Set False Expectation BVC Logistics is a market leader in providing integrated solutions within express logistics, contract logistics, project logistics, ocean and air cargo. Over the past five decades, BVC has pioneered critical offerings in niche sectors. At BVC, benchmarked quality standards, standardized processes and operational excellence across services has helped in emerging as a market leader within several verticals. Over the past 60 years, BVC has built formidable expertise as a specialty mover of luxury and precious metals. Success in this niche business led to diversification into all other aspects of logistics. Now the firm looks to transform itself into a 4PL player – bringing competitive advantage to its clients through tailor made logistics solutions. SCMPro brings you the secret behind the success of BVC, in an interaction with Mr. Rajesh Neelakanta, Executive Director and CEO.
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Rajesh Neelakanta BVC Logistics Executive Director and CEO
VC has a niche set of service offerings it is known for. BVC is looking to offer a long term consistent solution to its customers. One of the reasons for BVC to look beyond the niche business was the conversion of what was essentially an unorganized business into an organized business, prompted by a spate of consolidation that happened in the latter part of the last decade.
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It opened a window of opportunity for smaller businesses with specialized knowledge to leverage it for faster growth. BVC noticed the gap in bringing organized players into a largely unorganized sector. These gaps were in the transportation and warehousing segments. For a long time, warehousing has been all about godowns – or places where you dump goods. And the developments in this area over the past two and a half years has been extremely good. Customers are happy to associate with an organized player and a 4PL service offering is gaining currency in India. BVC noticed the excess capacity available in the market and decided to marshal it efficiently by tying up with warehouse operators and
In logistics, there is a trend to create posts, but monitoring to ensure that people are present and working is weak small fleet owners – those who have between four to ten trucks. These players will be the ones who will execute the operation, while BVC focuses on credit risk management from a 4PL perspective. And while BVC gears up to be a 4PL player, it will not give up its 3PL role because that is intrinsic to any logistics companies offering. As it tries to bring in a PL focus, 3PL activities will continue. Traditionally, BVC has been an asset light organization. As it looks to consolidate its 3PL role, it is also planning to selectively invest in assets. It has invested in warehousing assets in cities like Ahmedabad and Coimbatore as a strategic fit, as the metros are getting crowded, and the chance to add value to the customers operations are limited. Therefore the focus shifted to Tier II and Tier III cities. Whatever trucks it has is the armored trucks for the gems and jewelry business. It is trying to bring in elements of 4PL which will give scale and speed. India has been a challenge for companies from the western world to do business with. One of the reasons for that is the vagaries of the supply parameter that they enter into. Very few have
understood the complexities of doing business in India from the logistics perspective. This is why most of their supply chain inconsistencies arise from. BVC is a part of the system that causes these inconsistencies. BVC is trying to bring in an awareness of the ground situation today. BVC tries to set their expectations in the appropriate manner. BVC believes that if they are able to articulate with empirical data, the buyer will come on board. As a responsible logistics player BVC understands that a casual commitment to a customer, which may be difficult to deliver will derail the entire planning of the customer. A clear message has been sent to all employees – do not set a false expectation.
Managing Risk BVC is operating in one of the highest risk segments of the logistics sector – gems and jewelry, diamonds and luxury goods. Recognizing the threats to the products moved, BVC has developed detailed SOP for each of the activities in the supply chain. Even a minor variation in the process halts the system and it can proceed ahead if and only if the deviation is corrected. BVC was the first firm in India to use GPS. The trucks have all the necessary protection that can be implemented. Another important part of the risk management is the stability of the employee. BVC has a lower attrition rate than its peers. Nearly 25 percent of the employees have 15 years of service and around 50 percent
of the employees have more than five years of employment history in the company. This was possible only because the firm believed in taking care of its employees. This is of paramount importance in an industry where we transport very high value cargo. These long serving employees are in functional roles and they have sense of belonging to the company, which reinforces the trust factor. The proof of the success of this approach has been the incident free record for over a decade. BVC has not had a single incident involving its trucks. This has paid rich dividends with the firm garnering a 40 percent domestic market share and 52 percent international market share in the gems and jewelry and luxury goods space. To enable BVC deliver better service, it has invested in technology. And instead of buying technology. It decided to develop an in house solution which has enabled it gather near real time
BVC believes that by setting up a network in Africa, sitting in Africa, it can attract both the Indian exporters and importers as well as other Indian logistics service providers | MARCH 2015
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SME Spark data. This helps its customers enjoy the comfort of reliable data. A third process followed is ensuring that all posts are manned continually. In logistics, there is a trend to create posts, but monitoring to ensure that people are present and working is weak. Security has two aspects. Technology – which can be procured and the human who uses the technology. It is this human technology interface that causes problems. This has not been an issue for two reasons – hire people with the basic skills
It is understood that operating a logistics business in China is not a viable opportunity for an Indian firm. Chinese prefer to use Chinese players or this and keep updating their skills periodically. This ensures that the firm is able to identify and mitigate risks as and when they arise in the field.
Going Global BVC has forged a joint venture with the US security company Brinks Inc. Brinks is the global partner for BVC shipments outside of India and similarly, BVC is the Indian execution arm for Brinks. For general cargo, BVC has decided to be present in key geographies. To begin with they 42
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have initiated the registration process for setting up an office in Singapore. In the near term – by the Q1 of next fiscal – BVC intends to be present in Hong Kong, Dubai and Shanghai. And in Q2 expand into Africa with an office in Dar-es-Salaam. BVC has customer commitments to work with them in these geographies. Apart from this, BVC is planning to start vessel chartering, primarily based on the pent up demand for infrastructure projects, especially power generation using coal. India has coal shortages and needs to import it to meet the power generation needs. With this in mind, BVC has initiated tie-ups with mine owners in Indonesia and Australia for a pit head to plant head logistics operation. It is understood that operating a logistics business in China is not a viable opportunity for an Indian firm. Chinese prefer to use Chinese players or this. There is very little scope for an Indian service provider to do business in China. The Shanghai presence is more for the end mile services of the first mile – essentially factory dispatch services and other allied services. Africa, on the other hand is an emerging market for Indian produce, with a lot of engineering product exports into Africa. And that is likely to go up s quite a few Indian firms are helping African firms sugarcane processing plants, chemical plants, mining operations etc. And most of them are happening from western India. BVC is planning to capitalize on that. Apart from this, Africa has always been an enigma for Indian
logistics companies. In spite of doing business with Africa for a long time, the integrity of African operations has still not reached the levels expected. Internal disturbances are always a threat. BVC believes that by setting up a network in Africa, sitting in Africa, it can attract both the Indian exporters and importers as well as other Indian logistics service providers. Doing business in Africa will be a challenge – there are large parts of the continent where visibility of the supply chain is lost. Add to it the widespread civil unrest in a large number of African countries. These challenges will remain for a longtime to come. In spite of all these, Africa presents a huge opportunity and BVC hopes to cash in on it early. BVC hopes to bring some method to the madness within Africa. Information flow is the biggest bottleneck in Africa. Companies exporting to Africa are not able to plan their project execution in the right manner. That is where BVC hopes to make a difference, by sitting there and explaining to shippers the correct scenario, and realigning their expectations. For an Indian logistics player, who till recently was focused on a niche segment of high value and luxury products, to spread across the sectors and make a pitch for a global 4PL play reflects the inherent strengths and skills acquired over the past six decades
View From The Top
Agri Warehousing: Ensuring a Better Deal
A Mr. Aditya Bafna Executive Director, Shree Shubham Logistics
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ccording to the Government of India, total storage capacity for agricultural produce and inputs in the country is estimated at around 125 MMT as of 2013-14. Warehousing in India saw a growth of CAGR of 6 percent from 2005 to 2014. Looking at the current scenario and Government targets, CRISIL Research has estimated that the demand for agricultural warehousing is expected to grow at a CAGR of 5-6 percent over 201415 to 2019- 20. The agriculture warehousing capacity in India has increased to -125 MMT by 2013-14 from 80MMT in 2005-06. Public warehousing capacity, including FCI, CWC, SWC, State Civil supplies and co-operatives grew at a CAGR of 5 percent between 2005-06 to 2013-14, whereas, private warehousing capacity grew faster at a CAGR 9 percent during the same period. Of the total warehousing capacity, around 69 percent is owned by government agencies, which is mostly used for storing around 61.5 MMT of food grain required under public distribution. The balance 31 percent of total capacity is distributed among private entrepreneurs, cooperative societies, farmers etc. According to Progress Harmony
Development (PHD) Research Bureau, the 4th advanced estimates of food grains production in 201314 is about 265 MMT. Government distributes subsidized food grains among the poor under the public distribution system with the help of Food Corporation of India (FCI) and its agencies. NABARD estimates that around 70 percent of the total crop produced, requires warehouse storage. Hence, around 185 MMT is the required storage capacity (if seasonality of crop production is not taken in to consideration). According to the Department of Food and Public Distribution, the total storage capacity, available as of March 2014 was -125 MMT. Hence, the current total capacity gap is of -60.5 MMT. As per Planning Commission estimates (in 2011 for 12th FYP), additional 35 MMT warehousing capacity is required in next 5 to 10 years to address significant part of estimated gap in dry warehousing. Based on ISAM’s (Integrated Scheme for Agricultural Marketing) normative cost estimates of constructing dry warehouses, construction investments (excluding land cost) to the tune of Rs 105 billion, may be required in addressing Planning Commission’s estimate of additional warehousing capacity requirement. Also, as per ISAM, minimum promoter’s
contribution should be 20% of the project cost. Hence, it is estimated that a total promoter’s equity aggregating to Rs 21 billion will be required towards new dry warehouses.
The challenges to growth Systematic development of agricultural storage and marketing sector is not only important from the point of view of reducing wastage and securing food security for the country, but can also result in empowering producers in realising a better price for their produce. However, despite continuous and well-meaning efforts of Government of India through its various ministries/ departments, agencies and regulatory authorities, this sector continues to face a number of serious like: 1. Handling & Transportation: Inadequate facilities for proper weighing (often found absent). Inadequate transport and cartage facilities aggravate the losses at various points in the value chain. 2. Primary Processing:
Absence/lack of cleaning, grading and sorting facilities in the producing areas. 3. Marketing: Laws/ statutes governing agricommodity trading like Agricultural Produce Marketing Committees (APMC) Acts, Essential Commodities Act, those regulating inter-state movement of agri-produce, multiple taxation, imports/ exports, etc., inhibiting the growth of this sector. Although, most of the states in the country have amended their respective APMC Acts, the desired benefits could not be derived because the progressive provisions incorporated in the amended Acts neither implemented in letter nor in spirit. Presence of commodity exchanges, both for futures and spot markets, has not been able to benefit growers/ producers. Forward Market Commission (FMC) has to play a proactive role.
(In %, MMT)
Others 31% (37.2 MMT) State Civil supplies 10% (13.7 MMT)
FCI 30% (37.4 MMT)
SWCs 21% (26.7 MMT)
CWC 8% (10 MMT)
4. Storage: Acute shortage of storage infrastructure (dry, cold and controlled atmosphere). Modern/scientific warehouse management/food grain preservation practices nearly non-existent. 5. Financial Support: Marketing credit for short term for producers. Storage infrastructure projects involve substantial expenditure on acquisition of land and have a long gestation period; hence companies need long-term funds for capital expenditure. Banks/ financial institutions should design customised products to meet the specific requirements of this sector. Term lending institutions, like NABARD (which has been provided with low cost dedicated funds for supporting this sector), should be allowed to lend directly. No warehouse in the country should be provided any subsidy unless it is licensed / accredited by WDRA. Many warehouses in the country neither storage-worthy, nor equipped to provide scientific storage and preservation services. Government of India should ensure to resolve all the above issues, and put in place requisite infrastructure and marketing mechanisms, which will help in reducing post-harvest losses, ensure food security and, above all, empower our farmers/ aggregators to access wider markets, thereby increasing their incomes. | MARCH 2015
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Human Resource
Keeping ahead of the Curve in 2015
Generational delivery, Global Mobility and how technology will continue to influence the way we talk about things this coming year. Darryl Judd, COO, Logistics Executive brings you an interesting collage of the predictions for HR by various experts and his own insights on the same.
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nother year has rolled around and here we are at the beginning of 2015. Now that the New Year celebrations have been put to bed, it is time to get back to work. There is nothing more compelling than the promise of the fresh start that a new year brings. With a fresh cup of coffee, let’s have a look across the board at predictions HR industry leaders
Darryl Judd COO, Logistics
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have come up with to see our new year off. According to the Huffington Post1 two of their main predictions are based on generational influences. A brief check on what other Human Resources professionals are saying reiterates this. Accordingly, the year ahead is going to be shaped and influenced by the following
generational events that will come to pass, namely the transition of millennials into leadership roles and the emergence of Generation “Z”.
Millennials/Gen Y “According to a study by ElanceoDesk, 27 percent of Millennials already work in managerial positions, and in ten years that number will increase to 47 percent. But Millennials may not be adequately trained to handle the tasks. So, if you plan to promote Millennials into higher positions, start training them for their new roles in 2015.”
Generation Z Has Arrived Apparently Gen Z were born between 1995 and 2010. “Generation Z workers will start to enter the workforce as interns and entry-level employees, and they are going to go fast. You may want to get in on the action by snatching up highly talented college seniors before competitors
The year ahead is going to be shaped and influences by the following generational events that will come to pass, namely the transition of millenniums into leadership roles and the emergence of Generation “Z”. hire them.” The only way for employers to prepare for both of these inevitabilities is to invest in robust HR strategies in training, recruitment, mentoring, and employer branding. In order to keep up with the growing demands of changing industry paradigms requiring new and shifting skill sets, training will take on a major focus in 2015. With the advent of social media and new technology forums, our work life is no longer a separate adjunct to our private lives. As a result, areas such as training are no longer endeavors to be followed in separate institutions but will mesh with our workplace
experience and “in-house” learning. Mixing work experience with training theory is the best way to ramp up the learning process to meet market dynamics and produce the best quality workforce. This will teach soft skills such as management and leadership skills, along with new identified new technology and industry training skills. Universities and other higher learning institutions will work closer with industry bodies to overcome their inability to meet skill gaps at the rates dictated by changing industries. To stay competitive, training has shifted from our personal life, to an essential undertaking as part of our work life. In 2015 there will be more investment in online training of shorter modules that are targeted to individual requirements, based on their workplace training plan. Most of this study will be done in the workplace via online training that will be cost effective and flexible whilst meeting the skill gap. Long term this will help retain employees as it offers them the opportunity to grow, develop and be promoted internally without the need to look elsewhere. | MARCH 2015
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Human Resource The War for Talent
Global Mobility
On a different note, a wide range of predictions by recruiters across the board have come up with the well worn prediction that the “war for talent” is going to heat up in 2015. Along with the growing question of “How many years can this so called war rage on for?” the skeptics will also be asking how it is possible for there to be a skill shortage when the Asia region contracted in 2014? The answer is that Asia is in recovery mode. 2014 saw China through its transition from an export and manufacturing driven economy to one that is more dependant on domestically generated
2014 proved that the world stepped even closer to a globally mobile workforce and this subject will continue to shape and influence 2015. It is nothing at all unusual at Logistics Executive for one of our Consultants in, for example, Singapore to be reaching out to their network of candidates in Asia about a role for their client, a Chinese owned company, expanding their business based in Africa. Today the average First World professional no longer sees an expat posting as a last resort for those who cannot cut it at home. It is now the most sort after career posting that offers opportunities
From mobile-based learning and enterprise platforms to the scrutiny of social media, technology will continue to play a central role in 2015 consumption growth2. Whilst this will continue in 2015, the ASEAN region seems to be absorbing change better. Governments are working closer together to allow markets to respond with more workforce flexibility and to allow companies to move their staff more seamlessly across boarders to meet industry needs. As a result, countries like India are showing job growth in areas such as manufacturing and a lot of optimism as job hiring increased to its highest level in the last two years in the first days of 2015. 48
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for exposure that only one the most sophisticated and highly scaled regions in the world can offer. New graduates in China and India are now therefore competing with the go-getters and best in class students from around the world who are willing to travel anywhere to realize their career aspirations. This can only further consolidate the ASEAN Region’s position as a powerhouse, even if it does make the marketplace more competitive for local graduates. Long-term it exposes graduates to best practice and the best thought leadership in the world and in doing so will
produce the best in class leaders of the future.
Technology and enterprose Mobility transforming workplaces From mobile-based learning and enterprise platforms to the scrutiny of social media, technology will continue to play a central role in 2015. New technology has provided the underlining means for so much of the change we take for granted and will continue to do so in an even more powerful way in 2015. From the ability of governments and industry bodies to seamlessly communicate with each other, to the increase in the exposure and examination of individual company reputations by online consumers and prospective employees. New technologies are proving not just a new means of working but a new way of communicating. This long distance dialogue between consumers and marketing executives, universities and workplace trainers, world leaders and CEO’s, will continue to bring us all closer in 2015 and should provide a very exciting year ahead. The author can be contacted at darrylj@logisticsexecutve.com 1) http://www.huffingtonpost.com/ margaret-jacoby/emerging-humanresource-t_b_6369388.html 2) http://blogs.wsj.com/ moneybeat/2015/01/06/macrohorizons-as-oil-slumps-systemicrisks-trump-cost-benefits-ininvestors-minds/
Academic Advocacy
Managing Value in Supply Chains: Case Studies on the Sourcing Hub Concept By Anupam Agrawal, Arnoud De Meyer, Luk N. Van Wassenhove
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aw material sourcing knowledge can be a strategic resource for a firm. This article explores how firms can capture and use this knowledge. It examines the sourcing experiences of four firms in four different countries in the automotive industry and identifies the raw material sourcing knowledge related parameters. Synthesizing the findings from these case studies, it proposes the concept of the sourcing hub—a collaborative center involving the firm, its suppliers, and raw material suppliers—which can effectively capture and deploy the raw material sourcing knowledge for managing value in upstream sourcing. It was published in California Management Review Vol. 56, No. 2 Winter 2014. Outsourcing is a way to improve efficiency in firms. However, for firms where the raw material cost is a major component of the total cost, it would be beneficial for the firm to manage the raw material supply chain differently from the manufacturing process. This paper examines the sourcing practices of four automotive firms 50
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focusing on the direct suppliers and the raw material suppliers, and how managing raw material complexity withinthis network can be valuable. According to the research, there are a few raw material suppliers, but a number of direct suppliers. The paper provides insights into a practice that is prevalent in the industry, but not captured by academic and practioners writing – what the authors call the sourcing hub. According to the paper “The sourcing hub is an in-house group initiated and deployed by the OEMand is focused on developing relationships with an OEM’s suppliers and raw material suppliers in order to develop deeper raw material sourcing knowledge” The authors studied the benefits of developing relationships with a supplier’s supplier. This will help the firm understand the pricing dynamics and sourcing costs. The study revealed that an Indian firm which was a major buyer of aluminum parts did not have any relationship with the largest aluminum producer in India. According to the authors “The research explores the effect of the supply chain partners at the
periphery of the firm: partners who may not supply directly to the firm, but may affect the knowledge of the firm and its operations, including factors such as design complexities and costs. The authors propose a specific supply chain structure to capture value from supply chains. This is the upstream entity, the sourcing hub, which helps in many ways. It facilitates generation and use of raw material sourcing knowledge by helping develop collaborative relations with raw material suppliers. Building a relationship with raw material suppliers encourages the sharing of demand, production, and design information. The sharing of information leads to improved sourcing processes and reduction in complexity of new product development, which helps drive down the costs of inputs. The work suggests that managers may have systematically underestimated the value that they can add by developing and preserving knowledge in their upstream sourcing. A specific way to develop this rich knowledge about raw material sourcing is the sourcing hub.”