SCMPro May 2015

P r o f e s s i o n a l

10th May 2015 | Volume 1- No.2 | Rs.200

Make in India Feature

Supply Chain Metrics - The Next Generation

24

LSP Focus

Modernizing Farm to Fork Supply Chain in India

38

Industry Interface Hi-Tech Logistics

44

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editorial Just Do It

The structural imbalances that face us cannot be resolved with short term measures. Hope the government stays true to the course.

For the past two years, we at SCMPro have been bringing you insights into various aspects of supply chain management. In a departure from tradition (does two years create a tradition) for this issue we decided to look at the Make in India campaign mounted by the Prime Minister. The aim was to develop India into an alternate venue as the factory of the world. The comments and brickbats were quick to follow. No one has openly criticized the call. The closest was the Governor of RBI coming up with an alternate – make for India. The logic was sound. India cannot replace China as a low cost manufacturer. Not unless China becomes too costly.

Nor can we depend on an export led growth when across the globe growth is muted. India needs to develop its own version of the global factory.

The question is not whether we make in India for export or domestic consumption. The core issue is that we make it. “For” or “In” is not the moot question. We need to rise beyond the polemics – we need to walk the talk. We need to just do it.

Happy Reading

GIRISH V S

Editor girish.vs@scmp.in

Managing Director Rakesh Singh rakesh.singh@scmp.in Executive Publisher Jayaram Nair Jayaram.nair@scmp.in Mobile:9821732929 Editor Girish V S girish.vs@scmp.in Research Editor Piyush Shah Piyush.shah@scmp.in Graphic Designer Sidhi Jadhav sidhi.jadhav@scmp.in Advertising Riddhi Solanki riddhi.solanki@scmp.in 022 60020157 Administration & Subscription Sanjay Gupta sanjay.gupta@scmp.in 022 60020159 Media Group D-204, Riddhi Siddhi Complex, Off. S.V.Road, Prem Nagar Road, Goregaon (W), Mumbai 400062. INDIA. Printed and Published by Jayaram Nair on behalf of B2B Media Group. Printed at Kalakshi Printing Works, 205 Gopal House IB Patel Road Goregaon (E) Mumbai 63.

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Contents

May 2015 | Volume 1 | No. 2 Lead Story Make In India

06 SCM News

Global Supply

Chain Face

Heightened Risks

08

20 Feature

Impact of E-commerce and Omni Channel on Apparel Logistics

SME Corner Financing Make In India

30

22 SCM

Education

Current Skill deficit and challenges for Logistics Industry

Industry Interface Hi-Tech Logistics

24 Feature

Vivek Arya

Supply chain

Metrics - The Next Generation

44

26Feature

A new Approach to Traditional Demand Planning in FMCG Industry

LSP Focus Modernizing Farm to Fork Supply Chain in India

34 Industry

Tarun Arora

Interface

38

Growth Through

Creativity and Innovation

Human Resource What inspires us more: Play or Participation

46 SCM

Classroom Minimizing the Impact of Bullwhip Effect

Darryl Judd

41 20

May 2015 SCMPr

49 SCM Update

SCM News

Global supply Chain

Face Heightened Risks A study by the Chartered Institute of Procurement and Supply, the risks to the global supply chain is increasing. A fall in commodity prices and the slowdown in China has increased the risks to global supply chains. The CIPS Quarterly Risk Index found that although supply chain risk fell in North America and western Europe last year it increased sharply in Latin America, eastern Europe, Asia and sub-Saharan Africa.

The Index was at 23.7 in 1994 and has tripled to 78.7 today. Supply chain risk has seen a steady increase since the financial crisis. To keep costs low, manufacturers operate complex networks of component supplies on a just-in-time basis, increasing the risk profiles. According to the report “The CRI score continues to reverse on its previous improving trend, deteriorating again in the first quarter of 2015. The measure of global risk has increased marginally to 78.7. The CRI has increased again after a period of falling operational risk in late 2013-2014. The CRI score is closing in on its record high, reflecting the continued sluggish global economic recovery, the impact of fallen commodity prices on key emerging markets, and elevated geopolitical risk.”

Supply Chain Analytics Pays – Colombia Sportswear Quite often we face the question – will an investment in an analytics software pay off. Colombia Sportswear – the US headquartered international outdoor apparel, footwear and equipment manufacturer has the answers.

According to Fred Pond, Vice President, Chief Information Officer, the use of analytics software to track apparel through its supply chain has boosted its profits. According to Fred, the use of the software helped Colombia increase the share of on time delivery of its apparel from 28 percent to 78 percent. In addition, the software helped prevent stock outs by triggering fresh orders when stocks reached a critical level, based on dynamic inventory models.

According to Noha Tohamy, a Gartner Inc. analyst, “Analytics is set to become the top technology investment in supply chains in the next year. Manual analysis and gut guesswork has made it untenable in the face of data and customer requirements” However, we need to be aware that solutions alone do not work. We need to develop the capability to use the solutions optimally. Clearly, Colombia has done that.

Drones to Deliver Post?

If reports are to be believed, the US Postal Service (USPS) is toying with the idea of using drones for its last mile delivery. According to reports, the Workhorse Group – an electric truck and drone manufacturer – is one of the final fifteen firms from which USPS will choose its next generation delivery vehicle. It is not yet clear if USPS will choose such a disruptive technology for its last mile delivery. Currently USPS uses 180,000 vehicles across the US for delivering post. Apparently Workhorse has an innovative solution for USPS – an electric truck with a drone mounted on the roof. The drone will use mobile 3G signals to reach its target. The driver will use a tablet mounted in the truck to identify the final delivery address. The drone will use the truck battery to re-charge itself.

Clearly we are seeing disruptive technologies ahead. Will our dakia change soon?

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Make in India

The Supply Chain Link F or two years the lead story of your magazine was devoted to issues specific to the supply chain. We covered the gamut of issues – from industry specific challenges to cross sectoral challenges. From 3PL to Rail Transport. This issue of your magazine examines a different concept – the contribution of supply chain to the “Make in India” vision of the Prime Minister.

the worst in per capita production. If we have to shift our population from agriculture, we need to develop our manufacturing sector. And the shift is inevitable. This is where the Make in India vision comes in. There are two compulsions that have resulted in this vision – the opportunity that the world economy presents and the need to shift our occupation.

After a long time a slogan has captured the imagination of the country. Lal Bhadur Shastri coined the slogan “Jai Jawan, Jai Kisan” and Indira Gandhi “Gaibi Hatao” But for the first time we have a slogan that has resonated across the world from USA to China, from Japan to Mongolia, Make in India has become a the focus of discussions. A country of 1.2 billion, a huge middle class, a young country, India can be the factory to the world.

Especially so when the factory to the world – China is showing signs of slowdown. China is at the top end and India at the bottom end of the middle income countries. As China transforms into a high income country, we can expect it to lose some of its cost advantages. And as at the bottom rung, India has the skills, resources, manpower and ability to fill in that gap.

As the industrial sector gears up for the Make in India thrust, we will need to significantly improve our supply chain capabilities. The Make in India vision can falter at the supply chain. We can set up the best production systems in the world. And we can produce quality products. But unless we can bring in the required raw materials from across the world to these factories and take out the finished products to the consumers, where ever they are, Make in India will remain a non-starter.

The Make in India vision aims to tap into the opportunity that has presented itself – to become an additional factory to the world. It also seeks to correct the current structural imbalance we have in our growth. One such issue is the skew in our growth – with services hogging a high 64.8 percent followed by industry at 21.5 and agriculture at 13.7 percent. This 13.7 percent of GDP supports 56 percent of the population – making it one of

And what does a world class supply chain include?

It starts with infrastructure – the network of roads, ports, rail and air links across the country and internationally. We need the next generation clean vehicles to ply on these infrastructure. We need energy. We need the financial supply chains. We need the skilled human resources that can run these supply chains. We need the ability to store the finished goods. We need to create a single nation – not a patchwork of states and cities, each creating a bottleneck. We need an efficient, value for money supply chain. Else, Make in India will be a pipe dream. And we are the ones who can make a difference.

Happy Reading.....

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Lead Story

Make in India –

What the Reports Foretell The success of industrialization will depend on the business ecosystem in the country.

Popularly called “Ease of Doing Business” it encompasses a wide range of infrastructural, policy and regulatory frameworks that will help set up a business. To start our special feature on Make in India, the Editor of SCMPro, Girish V S takes a look at two major dimensions for it to succeed – the Ease of Doing Business – a report compiled by the World Bank and the Logistics Performance Index – also from the World Bank.

T

he World Bank, in its 2015 report (released in May 2014) puts India at a rank of 142 out of 189 for Ease of Doing Business. India had slipped two places down. The graph below captures our position in a nice way. For the sake of Make in India – which entails setting up a business and selling overseas, we will just look at two indicators – Starting a Business (158/189) and Trading Across borders

these procedures. Starting a business in India requires 11.9 procedures, takes 28.4 days, costs 12.2% of income per capita and requires paid-in minimum capital of 111.2% of income per capita. Compare this with the no. one in this category – New Zealand. It takes 1.0 procedure, takes 0.5 days, costs 0.3% of income per capita and requires paid-in minimum capital of 0.0% of income per capita The new

To help in reducing the time to start a business we should introduce work flow automation and document management systems in our departments which will automatically route the documents to the required officials in the right sequence.

A simple step of installing x-ray scanners in ports, where containers can be scanned, instead of manual inspections can save time.

An added bonus will be that the PM will be able to track where the bottlenecks are.

(126/189).

Starting a business measures the ease of starting a business by recording all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business—as well as the time and cost required to complete

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Government has undertaken a slew of reforms aimed at making this task easier – from introducing single window e-filing for a number central clearances, rationalizing the number of procedures and more importantly, doing away with the minimum capital requirement for setting up a private limited firm.

We are reputed to be an IT nation.

A second major impediment is land acquisition. The current framework makes it very difficult for private sector to acquire land for business. The 80 percent consent clause is a deal breaker for the private sector. The Land Acquisition Bill is a step in the right direction, but we are yet to see it passed.

India is ranked 126 for ease of trading across borders. Excessive document requirements, burdensome customs procedures,

Lead Story

inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, stifling trade potential. Exporting a standard container of goods requires 7 documents, takes 17.1 days and costs $1332.0.

Importing the same container of goods requires 10 documents, takes 21.1 days and costs $1462.0, while in Singapore exporting a standard container of goods requires 3 documents, takes 6.0 days and costs $460.0.

Importing the same container of goods requires 3 documents, takes 4.0 days and costs $440.0.

In India, the procedures are made with an assumption that business is dishonest and will cheat. In developed nations, they assume everyone is honest and keep the documentation simple. We need to rationalize the documentation and processes and introduce automation as a routine. A simple step of installing x-ray scanners in ports, where containers can be scanned, instead of manual inspections can save time.

The second report – the Logistics Performance Index measures the on-the ground efficiency of trade supply chains, or logistics performance. The LPI and its components help countries understand the challenges that they and their trading partners face in making their national logistics perform strongly.

According to the report, India is ranked 56 with an overall score of 3.08 and at two thirds of the efficiency of the leader, Germany.

The above graph explains India’s progress. Since 2007, we have not made any progress in any of the indicators that compose the LPI. Unless we focus our attention on

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getting the LPI score up, Make in India will face stiff challenges.

The LPI measures six dimensions that affect logistics – Efficiency of the clearance process (i.e., speed, simplicity and predictability of formalities) by border control agencies, including customs; Quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology); Ease of arranging competitively priced shipments; Competence and quality of logistics services (e.g., transport operators, customs brokers); Ability to track and trace

ships cannot dock in our ports – something that Sri Lanka has managed to do! The rest four are the contribution of the logistics industry. Our logistics industry has not pulled up its socks and tried to improve the factors controlled by it. The low hanging fruit in the fab four is improving the competence and quality of services. For Make in India to work, the logistics industry, or sector needs to upgrade their skills and hire better talent.

Logistics is no more the back room operations. Ability to track and trace consignments needs investments in technology.

India 2014

Source: Chart by amchart.com

consignments; and Timeliness of shipments in reaching destination within the scheduled or expected delivery time.

The first two are the domain of the government. Fortunately, the government is seized of the matter, and investments in infrastructure are looking up. A slew of measures have been announced – from speedy award of contracts to attracting investments, the government is moving with urgency. It is a shame that larger container

Technology is available. But since the industry is treated as a prime candidate for cost squeeze, technology deployment remains sketchy and underfunded.

For close to a decade we have stagnated. It is time we focus on our LPI indices and create a smooth highway for our trade in goods to happen. India created the telecom infrastructure, and our IT and ITES industry became global leaders. It is time we focus on the physical infrastructure and become the alternate factory of the world.

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Lead Story

Digital Supply Networks: A Key To The Success of Raghav Narsalay***

Manish Chandra**

Sanjay Dawar*

‘Make In India’

Ever since the Prime Minister Narendra Modi unveiled his vision of “Make in India”, it has caught the attention of every one – some to ridicule it, most others to take it as a call to arms for a resurgent India. Make in India or Make for India, it entails the same set of activities – a focus on the manufacturing sector. When the focus is on manufacturing, supply chain cannot be far behind. Sanjay Dawar, Manish Chandra and Raghav Narsalay of Accenture, India write about the need to shift to digital supply chains.

‘Make in India’ is the flagship industrial initiative of the Government of India. This program is primarily designed at encouraging companies to invest in developing globally competitive valuecreating capacities in India by fostering innovation, skill development and building best in class infrastructure across manufacturing and services sectors.

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But the initiative won’t succeed if companies continue to build on the foundations of an analog production supply chain. Supply chains that operate through the technologies, systems and culture of the analog era will not serve well in the digital era.

They have been designed to serve production goals, not customer demands.

Both business and individual customers today require the

customized, agile responses that digital capabilities enable.

What should companies locked into old technologies and systems do next? Three actions can help them transform their analog production supply chains into digital supply networks.

Envision your supply chain as a digital supply network. The key here is to reimagine the supply chain as a digital supply network that unites not just

flows of physical materials but also talent, information and analysis. (See Figure 1) Digital supply networks can help companies capture large savings and competitive advantage in many ways.

For example, they can help optimize the operations across the enterprise; they can unite all stakeholders (designers, suppliers, manufacturers, external innovators, distributors, logistics services providers, retailers and even customers); and they can inspire new ways of thinking and working.

network. The blueprint must be owned by the business’s C-suite and include milestones for the integration journey.

It must provide a roadmap showing the convergence of the talent, physical, information and financial supply chains. It will also make clear how an integrated supply network will transform the company’s performance.

Foster digital capabilities across the integrated supply network. The goal of building a single integrated digital supply network will remain a pipedream if digital

operating data to production and analytics teams to be shared with suppliers on the cloud. A combination of mobility and analytics is helping these teams estimate their component needs while at the same time helping their tiered-suppliers manage their inventories better. Interactive media and 3D printing is helping them prototype in real time with their suppliers and customers. And they are using social media to generate valuable insights through active customer engagement.

In short, what we recommend

Figure 1: Digitalization is helping to combine traditionally distinct supply chain elements into seamless digital supply networks.

Source: Gary Hanifan, Aditya Sharma and Carrie Newberry, The Digital Supply Network: A New Paradigm for Supply Chain Management, Accenture Strategy, 2014

Develop a blueprint of an integrated digital supply network. Companies often attempt to weld digital and analog capabilities together, with less-than-optimal results.

When it comes to traditional supply chains, they end up creating hybrid models that combine older paper-based and newer IT-optimized processes. Such piecemeal digitization of supply chain elements is counterproductive.

Companies should instead develop a blueprint for an integrated digital supply

capabilities are not injected across the supply network.

Consider how leading automobile companies are injecting these capabilities.

They are now creating platforms that allow the network to share the combined power of the digital technologies across their value and supply networks.

Their engineers, suppliers and external innovators are interacting on the cloud, arriving at better and faster solutions. Sensors in vehicles are providing real-time

here is a disruptive shift in outlook and action. But such a shift is critical to the success of ‘Make in India’. *Sanjay Dawar, Managing Director and Lead –Accenture Strategy, Accenture, India **Manish Chandra, Managing Director and Lead – Operations Strategy, Accenture Strategy, Accenture, India. ***Raghav Narsalay, Managing Director, Accenture Institute for High Performance, Accenture, India.

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Lead Story

Capitalizing the

Demographic Dividend

India is one of the youngest countries in the world – with an estimated 65 percent of the population below 35 years. At this rate we can aspire to be the suppliers of human capital to the world. But it is easier said than done. While export of human capital can seem like a good story – and India has a long and successful record on this – look at the Middle East – where Indian diaspora has contributed to building sovereign wealth. And in the process remitted USD 70 billion into India. We examine the role of our human capital to Make in India.

I

ndia has a demographic dividend – a huge young population. The problem – we need to be able to provide them with meaningful employment.

India is adding around 20 million youth to the job market every year – that is close to the population of Australia. Agriculture cannot support such numbers. Nor can the service sector. We need to develop our manufacturing sector. Manufacturing can absorb these numbers. Just for this reason Make in India, or the alternate Make for India is a necessity. Make in India can provide meaningful employment, but they need skills.

The National Skill Development Mission is a step – but it is not yet sure in which direction. Do we look to create traditional skills like welders, technicians for traditional businesses, using the traditional manufacturing processes or do we focus on

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technology enabled businesses where the employees need different skill set. From what we see of the Skill Development Mission, we are going the same beaten path.

There is abundance of manpower but poor labor productivity. India continues to lag China and many other countries in terms of monetary output per labor The new paradigm for manufacturing is very different from the old model. The factory of tomorrow will be using what technology geeks like to call “disruptive technology” – a series of computer controlled robots that can produce a range of goods, with the ability to self-diagnose problems and find solutions. Already robots

in the Amazon warehouse plug themselves into a power source when they detect low power. The internet of things will allow us to control the production process from remote locations, and stay on top.

The Make in India we should aspire to should be such industries – not the traditional low cost wage arbitrage models we have seen across the world.

China became the factory of the world based on wage and exchange rate arbitrage. The factory of tomorrow needs a different set of skills – that we are yet to identify. That is if we want to be the factory of the future.

There are quite a few disruptive business models out there – firms like Uber, Flipkart, Housing.com are at the vanguard of the new way of doing business.

The employees of the factory of the future will be trained to think

The factory of tomorrow will be using what technology geeks like to call “disruptive technology” laterally – to find solutions to challenges in unconventional ways. The skill development we need for the Make in India of the future has to be critical

thinking, analytical models and technology enabled. India cannot replicate the China model of production. For one, in spite of China being a communist country, the workers do not have the working conditions in India.

We cannot create the make in India in sweat shops. We need a more egalitarian approach, keeping the basic human values in mind. Make in India cannot

be the mantra for a low wage manufacturing base. Make in India has to be based on both capital productivity and labor productivity. As the world ages, India needs to transform itself into the production and service capital of the world, not a source of cheap labor.

And that should be the aim of the Make in India campaign.

Make in India Mayank Pandey GoI #makeinindia national program is definitely a step in right direction. Historically India has been bestowed with factor advantages - cheap and abundant labor, skilled English speaking workforce and stable capital markets providing access to capital. There should be a reason to belief that with right intent and supporting policies India should definitely be able to become a competitive manufacturing hub.

However, in the context of manufacturing, it’s going to a be a hard and tough journey. India is mired with structural challenges especially around the Supply Chain. Competitive advantages in manufacturing industry are more often than not built around efficient and effective supply chains. Supply Chains that are agile and responsive, that can respond fast to changing market needs, yet are efficient and have high velocity. Only such supply chains provide the competitive advantage that will attract investments. If not - this program is less likely to meet its stated objectives.

Unfortunately the supply chains in India continue to face challenges. These are key areas that need to be addressed 1. There is abundance of manpower but poor labor productivity. India continues to lag China and many other countries in terms of monetary output per labor. Labor reforms is needed to drive up productivity 2. The logistics infrastructure continue to be below par. In India a Heavy Goods Vehicle will cover on average 350kms a day which is half that of a similar vehicle in Thailand. Improving infrastructure will be critical to success.

3. Ease of doing business. It’s still hard for businesses esp. small and medium businesses to get approvals, manage onerous task of filing all returns and get licences for setting new business / warehouses / plants etc.

With right policy intervention by government and concerted investments in infrastructure India could well be the new darling for manufacturing investments.

SCMPr May 2015

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Lead Story

Make in India

Hobbled by Finance Traditionally, emerging nations – India among them – have relied on export led growth models. The fantastic success of China over the past two decades are being cited as proof of the growth paradigm. But with developed markets yet to emerge from their troubles and their slow growth momentum, India has to now discover its own model. The “Make in India” vision of the Prime Minister found resonance among Indians. It became the rallying cry for manufacturing led growth. For Make in India to work, we need to focus on the financial services sector to provide the right ecosystem for firms. The Editor of SCMPro, Girish V S takes a look at the financial infrastructure requirements to deliver on the vision.

S

upply chains have been all about producing and distributing the right products at the right price to the right place at the right time to meet a customer demand.

The traditional process in a supply chain was to beat down the price and payment terms of the supplier. The “vendor negotiation” was essentially all about squeezing out the last penny from the vendor. Stories of a buyer engaging with multiple vendors, pitching one against the other to gain those few paise are well known. (Infosys had the rare gumption to walk out of negotiation under such circumstances) This resulted in suppliers struggling to stay afloat.

As mentioned in the introduction, India is a country with poor infrastructure, education, health care, connectivity and a billion dreams. Make in India is an effort to harness the latent potential of the Indian, and in the process convert India into a factory for the world. This

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means we will be at the center of a complex global network of suppliers and consumers, with goods, information and finance moving across boundaries. Firms today are realizing that capital constraints can pose a significant supply chain risk – the supplier may not be able to deliver the right quality at the agreed schedule for the price demanded.

And since the firm has built any lasting relationship with its suppliers. The possibility of the supplier moving to other buyers is real. The potential impacts of a supplier going out of business or of being late on an order are clearly understood.

According to the RBI Governor Raghuram Rajan, “...it is lack of formal financing rather than the excessive burden of informal financing which is the problem.

So can we move formal financing to every area of the country.”

He further says “We need to look at whether we have right institutions. Whether we have right incentive in the system”

The manual financial processes and inefficient use of working capital has resulted in tremendous capital stuck in supply chains of companies.

And this is where financial supply chain comes into its own. Financial supply chain refers to capital and liquidity across the supply chain. The financial services industry has responded to the situation and developed a number of schemes and products to ensure cheap funding across the supply chain.

To reduce supplier default or delay, we need to ensure they get their payment on time and that they are able to finance the gap at reasonable rates. There are a few options available to

Obtain better visibility over the funds flow in the system – it can help free up working capital by obtaining a clearer picture of where funds are required

suppliers today. Some of these like factoring and bill discounting remove the time lag in payments.

Other products enable the buyer and seller to come together in a single platform – like supplier finance and distributor finance – where the buyer helps the seller get finance at rates that they themselves obtain.

The Role of Financial Supply Chain in Make in India Make in India envisages the setting up of a host of firms – primarily manufacturing, but also services. One of the key ingredients of a new business is the financing options. To compete in the global markets, firms should be able to access to the required finances at competitive rates and on time.

The challenge to setting up of manufacturing units is the capital requirement – both capex and opex. Under the current dispensation, the growth of bank credit to industry has been an

Make in India is an effort to harness the latent potential of the Indian, and in the process convert India into a factory for the world abysmal 3.5 percent. The reason for such poor credit offtake is the absence of credible proposal – and not the unwillingness of banks to lend.

One challenge is the absence of good proposals for banks to finance. This shows a deeper threat to the Make in India vision – there are not many proposals worth financing. If manufacturing has to take off

we need entrepreneurs who are willing to come forward to set up units. The reasons for this lack of good proposals is not directly tied to availability of finance and is beyond the scope of this article.

For the sake of this article, we will assume that the unit has been set up and look at the challenges they face in getting the required financing. There are a few challenges that the financial services institutions have to meet to realize the Make in India dream. ●● The first challenge in onboarding of the suppliers and partners on to the buyers funding partners. This reduces the cost of funding, a major reason why Indian firms cannot compete in overseas markets.

The interest rate for an SME in India rages from 14 to 16 percent. If we have to compete with Chinese firms, we need to provide our firms cheaper access to funding. The Supplier finance and channel financing schemes are one step in this direction. ●● Inability of Banks to move from the traditional credit assessment, collateral requirements and risk management. This reduces the ability of firms to access funding in the new asset light supply chain models that stretch across borders. ●● Cumbersome legal documentation – since make in India will extend the supply chain across borders, with elements lying beyond national borders, the costly, non-standard documentation processes can add to the overall supply chain cost, reducing supply chain surplus. ●● Technology adoption in the Order-to-Settlement process by managing the purchase

order all the way up to the actual settlement of an invoice.

Technology should help the firm accurately document and validate purchase orders, part numbers, pricing levels and shipment dates, process invoices, and manage the receipt and payments between customer and vendor amongst thousands of transactions.

Errors can cause delays, wrong shipments, cancelled orders and, ultimately, lost revenue.

Something we cannot afford as we take baby steps into the global markets. ●● Obtain better visibility over the funds flow in the system – it can help free up working capital by obtaining a clearer picture of where funds are required. Any reduction of working capital translates into lower costs. ●● Increasing efficiencies throughout the chain – this is a given. Cronie (2008) describes the following limitation of a Financial Supply Chain: “An optimized financial supply chain requires efficient internal processes, effective collaboration with financial partners, the right liquidity structures and the use of appropriate financing techniques.”

One of the significant challenges Make in India will face is the inability to provide financing at competitive rates. Apart from the traditional financing routes like banks, non-bank actors and factors, we need to explore crowd funding, Private Equity and Venture Capital financing. A two hundred basis point reduction in financing would decide if we will be able to sell across the globe.

And the success of Make in India.

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Lead Story

MAKE IN INDIA Dr. V. Aditya Srinivas; Chief Operating Officer & Chief Economist; Bombay Stock Exchange Brokers’ Forum The Indian economy GDP has seen contribution of 14.6% in 1992 from manufacturing sector and it has been at 14.9% in 2015 which means that Manufacturing has hardly contributed to the growth in the economy. Today we need to create 1.5 crore jobs every year for next 20 years. This cannot be achieved without manufacturing sector creating mass jobs.

The “Make in India” campaign launched by the Government involves getting MNC set up their manufacturing base in India. This would create mass job opportunities for the Indian population. But the key challenge in our economy is the following ●● Stability and predictability of the tax laws ●● Ease of Doing Business in India The recent issues of Minimum Alternate Tax on FII shows that how our laws are unpredictable and sudden out of the blue demands are being done by the Government. The Nokia plant in Chennai has been asked tax demand of Rs. 10,000 crore has clearly stated that they would shut the plant and give the tax. But this would mean that 30,000 Indians working in that plant would lose their jobs. The “Make in India” can be successful if the MNCs are confident about tax laws stability and are given ease in doing the business. The Ease of doing business can be implemented by removing the multiple registration, bureaucracy, red tap issues by having online approvals for setting up of the business.

The availability of the skilled labor is another challenge since Make in India would require skilled work force. The National Skill Development Council (NSDC) is trying to create skilled workers which can cater to the needs of the MNC who set up their manufacturing base in India.

The concept of Make in India is the need of the hour since this could potentially solve the mass job creation.

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Feature

Impact of

E-commerce and Omni Channel on Apparel Logistics E-Commerce is widely perceived to disrupt supply chains, putting a huge pressure on the logistics service providers. From the bulk transportation model, e-commerce is ushering in a B2C delivery model. Where the movement of goods was from the manufacturer to a distribution center and thereon to a store, where bulk handling is the norm, firms have to now ship products from the distribution center to the end customer – a last mile nightmare. Mr. Jasjit Sethi, CEO of TCI, SCS writes about the impact e-commerce has on apparel logistics.

India’s garment industry, which ranks the second-largest in the world, plays a major role in country’s economic health. The industry is expected to grow to the size of US$ 223 billion by 2021, according to a report

by Technopak Advisors. This has implications on several parameters of progress. The sector already contributes about 14 per cent to industrial production and four per cent to the gross domestic product (GDP).

Mr. Jasjit Sethi, CEO, TCI, SCS

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Over the years Indians have been exposed to the concept of fashion, with its cycles of seasonal trends. Consumers are becoming increasingly concerned

with the relevance of prints, cuts and silhouettes with regard to the current style. While our garment industry felt the effects of globalization after independence, the economic liberalization of

Given the growing importance of e-commerce in Indian fashion, LSP’s are playing a vital role for the garment sector now, more than ever before 1991 further revolutionized the way garments were viewed, and consumed, domestically. The emergence of celebrity designers, the fashion weeks, glamour industry and fashion icons whose

Like other industries, the textile and garment sector has its challenges. As with all other consumer goods, the textile product cycle is getting progressively shorter. Consumer tastes are fickle, and what sells today may be shunned tomorrow. Shrinking product cycles, multiple vendors and manufacturing locations, rising expenses, and lack of process visibility, among others, are hurdles this industry must contend with.

sartorial choices are broadcast via the media, has played a big role in priming the public consciousness for the modern concept of fashion.

Not only has this phenomena helped our garment industry grow, but also made it crucial for manufacturers to be highly competitive. Quality, pricepoints and design are important.

However what’s most crucial, and basic, to the success of a garment business is the ability to “have the right product, at the right time, in the right place, at the right price.”

This is what supply chain management (SCM) deals with.

Many companies consider logistics and supply-chain management the last frontier in achieving corporate leanness and maximizing profits. Logistics plays an important role in ensuring that the right products reach the retailers at the right time.

The logistics sector is looking for ways to reduce the amount of time products spend in transit.

One way to ensure that the items consumers want to buy are available when they want them is to develop methods for intelligent segmentation of products that allow manufacturers to fast-track trendy items that need to hit the shelves quickly, and develop strong replenishment logic, processes, and systems that cut costs by using more efficient processes for basic products that their stores always carry, and only refresh on a periodic basis.

Once products have been segmented, companies can determine the quantities of each item to produce at a time based on demand forecasting. All this has to be supported by linking a lean retail environment to a lean supply network – a network that can replenish required inventories as they are needed.

The services of a good Logistics’ Service Provider (LSP) comes in here.

The TCI Group, with revenues of over Rs. 2,500 Crores, is India’s leading integrated supply-chain and logistics’ solutions provider.

With expertise developed over five decades, it has a network of over 1,000 company-owned offices, 10 million square-feet of warehousing space, and a team of over 5,000 trained employees.

Textile and apparel, one of TCI’s major verticals, employs a dedicated team to service this facility.

The advent of technology, combined with the omnichannel assault and social networking, has made India’s garment industry a furious retail environment. This has put the power to dictate the market into the hands of the endconsumer. Given the growing importance of e-commerce in Indian fashion, LSP’s are playing a vital role for the garment sector now, more than ever before. With e-commerce making trends, and consumption, more instantaneous, the entire value chain focus has to be shifted, from cutting production costs to meeting a consumer’s requirements. No matter how vast an online or offline retailer’s inventory may be, profits are only achieved once an item is in the consumer’s hands – or better yet – in their closet.

A good LSP has to anticipate the evolving challenges, duediligences and solutions for the garment sector’s supply-chain needs. This is specially so in the age of information technology, and instant gratification. At TCI, the endeavor is to constantly provide our partners in the garment sector this support, which enables them to stay on top of a stunningly dynamic market.

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SCM Education

Current Skill Deficit and

challenges for Logistics Industry Logistics has always been a people driven industry. Even the very high usage of technology has not diminished the need for people. In fact the increase in volumes and more importantly awareness and importance experienced in recent times have increased the need for people.

There has been no specific study done, however an NSDC report does put the figure at 1.77 crore new personnel. Sameer Shah, Partner JBS Group of Companies writes about the skill gap.

The demand for people in logistics can only grow. However the skills and capabilities of people in this sector is less than desired. The knowledge; ability to adapt; to react and act is still way behind what is desired or seen in other regions worldwide in our sector. Can we say like the advertising industry – “no other group has the skills, scope and scale that we have”.

The origins of this problem lies in recruitment. Joining the Logistics industry is by default or as a last option. One can get a job easily here. There are no major entrance requirements and the need for personnel is very large and continuous. The Logistics industry has never proactively worked towards addressing this need. We remain too busy in execution and have little time or inclination for policy or industry centric activities. We are also too busy being competitive and challenging in our quest to get the best deals out of our vendors for our clients.

Sameer Shah, Partner JBS Group

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This must change. We require skilled manpower with a readiness to update themselves continually. What will and should change is

the ability of the individual working here. Logistics remains a competitive field – it always has been and shall remain so for posterity. We need to appreciate that the cutting edge – competitiveness with which we can challenge each other is our manpower. Technology and processes shall change but they will be available to each of us. We need to recognize that it is our people who will help us to grow in this competitive market. The need of the hour would be that we recognize that only we can help ourselves. We are best placed to help ourselves.

We could work to popularizing this segment – awareness campaign in the schools and colleges; road shows; award ceremonies; create role models for the youth to aspire to follow. We need to sell careers and scaling up in life here.

We could work out standards for recruitment; minimum educational and other guidelines; minimal and continual training protocols; certification; easy movement to staff within the sector for the first few years and then let the individual companies work on attrition issues.

Rural and Agricultural Supply Chain Summit 2015 21st August 2015, The Orchid Mumbai Out of the Box Strategies for the Future

Rural markets provide a vast opportunity for corporates in India. In the past companies have been flirting with rural markets without much commitment. There are three important flows in rural markets: Urban to rural for consumables and expendables, urban to rural for agricultural inputs and rural to urban for agricultural produce. Rural and agricultural marketing suffer from infrastructure, and credit constraints. Making cost of reaching rural market high. Farmers on another hand do not find access to markets directly leading to lower realization for their products.

The summit will explore the evolution of Agri retail, logistics challenges, lack of access to credit and risk management. This will provide a platform to explore a collaborative out of box rural reach and development strategy which will be a win-win solution for all stakeholders.

Agenda

Why Should You Attend?

r Challenges of Modernizing Indian Agriculture - r A Macro and Micro View r The Changing Rural Consumer r r Rural Reach and Agri Supply Chains – Strengthening the Ties r Challenges of Reaching and Communicating r with Rural Consumers r Making Agri & Rural retail successful r r Role of Rural Credit / Insurance in rural Agri r Supply Chain r Rural and Agri Logistics – Cold Chains, Ware houses and infrastructure bottlenecks r Experiments in Agri Logistics – the case of ITC e-Choupal and Tata Kisan Kendra r Dynamic Alignment – Bringing Sales, Marketing and Operations together r Out of the Box Strategies for rural and Agri Markets

Understand drivers and enabling framework for reaching rural markets.

Understanding the role of corporate initiatives in rural and agricultural development.

Getting abreast with logistics, credit and insurance need in rural markets Develop an understanding of the challenges in Agri and Rural Supply Chain An aggregate collaborative out of box strategy f or all players in the rural Agri markets.

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/ISCM.net /iscm_info /institute-of-supply-chain-management-iscm-

Initiative

To Register: www.iscm-rass.com | For more details, contact info@iscmindia.net or call 022 60020157/ 9

Feature

Supply Chain Metrics The Next Generation Successful businesses are rethinking their supply chain metrics. In fact, survival in the “the new reality” may require design, development, and implementation of a new generation of supply chain metrics. Monil Choksi, Head- Supply Chain, DHR Holding India Pvt Ltd; Danaher India defines the next generation supply chain metrics..

Managers require metrics to demonstrate performance improvements and the value created across the entire supply chain. However, the metrics currently used in most enterprises cannot capture performance across multiple companies and are typically not translated into financial performance. Historically, the basic elements of a supply chain – procurement, warehousing, transportation, fulfilment, and information systems – have been measured and evaluated separately. For example: Defects per million (DPM) % on time delivery Fill rates Inventory turns Cost/mile Profitability Returns rates

Monil Choksi, Head- Supply Chain, DHR Holding India Pvt Ltd

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What’s the problem? Single measures of performance cannot capture performance differences between suppliers, customers or supply chains. The internal focus of these metrics often drives management in a direction that may maximize local efficiency, but runs counter to improving supply chain effectiveness.

Internal metrics do not extend management’s “line of sight” beyond the boundaries of the enterprise. Each customer

and supplier has unique characteristics that drive costs and performance differently. As managers attempt to collaborate across multiple enterprises, supply chain metrics are essential for evaluating and aligning performance.

In addition, different enterprises and supply chains will employ different strategies to achieve a competitive advantage. For example, some may focus on a differentiation strategy and will adopt metrics focusing on speed, flexibility, and the ability to permit mass customization.

Other supply chains may compete on a cost-based strategy; and key metrics would focus on cost minimization and efficiency.

Each supply chain in which an enterprise participates may require a different set of metrics to reflect differences in strategy, objectives, and trading partners.

Today, businesses must sense and quickly respond to changing stimuli in “the new reality” – which includes such key elements as: Soaring fuel costs Driver and other labor shortages Capacity constraints Highway and port congestion Crumbling infrastructure.

But in addition, rapidly increasing global trade is accelerating

the rate of change and adding complexity to our operations.

Organizations from all industries are experiencing the impact of outsourcing, reconfiguration of their global supply chain network, increased security requirements, and shifting economic realities.

And, to make the challenges even greater, our focus on lean logistics and supply chain optimization makes it easy to overlook the risks that are inherent therein and/or those that are introduced or magnified in an effort to achieve cost efficiencies.

A combination of integrated supply chain and supporting corporate measures are necessary for developing the linkages and measuring the performance within the supply chain. For example, an order fulfillment process connecting suppliers, manufacturers, distributors, and end users might focus on integrated supply chain process measures such as: High availability Fresh product Low landed cost No loss or damage Quick delivery Complete visibility throughout the supply chain.

As trading partners share information, exchange knowledge, and integrate their processes, it will become extremely difficult to use internally-focused measures to evaluate performance.

Integrated supply chain measures provide the capabilities to measure performance across enterprises while supporting corporate measures which enable managers to determine and align the performance

within individual firms. The combination of integrated and supporting measures provides the capability to quantify the impact of each firm’s actions on the overall supply chain. Once the performance measurements are established, managers can intelligently identify the most cost-effective “levers” across the supply chain for achieving a desired service level.

As an illustration, take the case of a leading toy manufacturer’s sales executive who hired people to visit a sample of some of his customer’s retail stores shortly after the end of the Christmas holiday season. He had pictures taken of the shelves to assess the availability of his product following the Christmas rush.

The pictures showed that in many cases the state of the shelves was a mess, with most items in disarray and most products out of stock – sure to impact the manufacturer’s postholiday sales! This executive, who took the position that his company needed to share some of the responsibility for this, started initiatives to correct it.

He implemented programs that were aimed at working more closely with customers on joint store-level planning and in-store merchandizing. The strategy paid off resulting in better product availability on his customer’s store shelves.

The lesson to be learned from this illustration is that at times it does makes sense to measure what you cannot control, as you may uncover a deficiency in your supply chain’s performance.

Once found, initiatives can be developed to address the problem and the performance measures can be used as the “call to action.” These initiatives usually

involve some form of program aimed at taking some level of control of upstream or downstream supply chain activities – extending beyond one’s enterprise. Some manufacturers have been implementing SCM programs to extend their control. These programs and their associated performance measures include: Total landed cost Point of consumption product availability Total supply chain inventory Retail shelf display Channel inventories EDI transactions Percent of demand/supply on VMI/CRP Percent of customers sharing forecasts Percent of suppliers getting shared forecast Supplier inventories Internet activity to suppliers/ customers CONCLUSION : Successful supply chain management ultimately comes down to the ability to create more value for the end user than for the competition. The configuration of enterprises, processes, and activities comprising the supply chain drives the level of value created. Complexity and the interdependent nature of the supply chain makes inter-enterprise performance measurements extremely difficult; however, managers who act first to develop inter-enterprise measurements and align their performance with supply chain objectives will achieve a sustainable competitive advantage their competitors will find difficult to emulate.

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Feature

A new Approach to

Traditional Demand Planning in

FMCG Industry Demand Planning is commonly used for sales forecasting in most organizations. The process starts with statistical forecast clubbed with Sales input feeding into the production and ends with distribution of finished goods to meet the expected customer demand. This process touches each function of business- from sales to marketing to finance to Supply chain to IT. However, the traditional approach in most of the organization limits the benefits out of best-in-class demand planning process; which is beyond just sales forecasting.

Deepak Bartwal, Godrej Consumer Products Ltd. takes a look at the changing role of demand planning in FMCG

E

ven after advancement in technology and processes, demand planning still remains a tough question to answer because seldom are we able to see a very clear picture of the benefits of better demand planning processes.

But at the end, we all agree that improved demand planning process would always improve the overall supply chain efficiency and effectiveness, thus improving overall organizational profitability.

In this article, we will discuss the basic fundamental questions of demand planning and shall try to find the answers to them.

1. Forecast generation- do we really need advanced tools?

Deepak Bartwal Demand Planning Manager, Godrej Consumer Products Ltd.

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The obvious answer to this question is a big and emphatic Yes- we need advanced software

for demand forecasting. When we consider the product life cycle, we can quickly see how complex is the forecasting process for a product. With the advent of IT technology, we have all possible data available in supply chain, marketing tools are there to inform us about the demand generation and advanced tool can tell us the same basis various algorithms. Still, every month MAPE report tell us some other story. So there are few learnings:““The basic requirement is to generate the Statistical forecast. It is always advisable to take the help of advanced software like APO etc. to generate the base statistical forecast. But this process is the mother of all assumptions. Although statistical forecast can’t be used for final planning, still

Logistics Service Provider Summit and Awards 2015

An elite gathering of LSP community to celebrate their achievements 11th September 2015, The Orchid, Mumbai Logistics Service Providers are the unsung heroes who keep the wheels of trade moving. SCMPro wishes to recognize and celebrate the achievements of LSPs in India at a celebratory dinner on the 29th of August 2015, with a series of Awards.

To make the event impactful, we have a cross section of thought leaders, consultants, Academicians and industry leaders deliberating on a few crucial issues that will decide the future of Indian LSPs. The summit will highlight the change happening in Logistics industry – driven by e-commerce and shaped by technology.

We look forward to welcome you as logistics community gathers to brain storm on the way ahead.

Award Categories 1. Women in Logistics 2. Young Supply Chain Professional 3. Lifetime Contribution 4. Innovative eCom Service Provider 5. Best Express Company 6. Best Retail LSP company 7. Best Transportation 8. Best Freight Forwarders 9. Best Contract Logistics 10. Best Multi-modal logistics 11. Best Project Cargo Of the Year

12. Promise of the Future (emerging Service Providers) 13. Best Reverse Logistics Service Provider 14. Innovations in Sustainability 15. Best Use of Technology 16. Best Warehouse in Multi Product 17. Best COLD chain Warehouse 18. Best Warehouse for Agri Commodity

19. Best Material Handling Equipment Manufacturer (Storage / Reach trucks....)

20. Best LSP to work with (Based on HR Policies) 21. Leading Light – Supply Chain Academics (Institution) 22. Supply Chain Performance Improvement 23. Innovative supply chain management 24. Best Practices in Supply Chain Risk Management 25. CSR in Supply Chain

Jury Members •• Dr. John Gattorna •• Dr. Ioannou Georgios •• Dr. loannis N. Lagoudis

•• Dr. Satish Ailawadi •• Girish VS

For

Nominations and Registrations:

www.ls p-awards.com Knowledge Partner

D-204, Riddhi Siddhi Complex, Off. S.V.Road, Prem Nagar Road, Goregaon (W), Mumbai – 400062. Tel: 022 60020157/ 59 | info@iscmindia.net | www.lsp-awards.com

Feature

most organizations do not use statistical forecast to the extent it should be used.

Reason being- most of the critical questions are not answered Improper sales history- time period, some months are not correct representative of product sales Sales history correction- some anomalies in sales, techniques to correct history Statistical Model selectionbest fit model selection in Forecasting software changes every month basis latest sales trend- Best Fit vs Fixed Model Handling future promotional events Secondary forecast vs Primary (shipment) Forecastin most organizations, we use secondary sales history for forecast derivation and primary (shipment) forecast is derived considering distributor stock. While we would be using advanced tool for secondary forecast generation but primary forecast is equally dependent on distributor stock level- which is rarely as per norm. So, even we might achieve better secondary forecast accuracy, primary forecast accuracy remains a step ahead.

Therefore it is immaterial whether we use the most advanced technology or a simple basic MS-Excel sheet, if some basic questions are not answered.

However, this doesn’t indicate that advanced tools are not needed at all. To answer these question some basic calculations can help Forecastability- before jumping to any software, a basic analysis is a

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must- forecastability. If forecastability is very poor for most of the products, it is unlikely that any technology can help in a big way. Hence it is the decision between ‘Best Fit Software’ vs ‘the most advanced software’.

Most advanced Forecasting Model vs Simple Model- most demand planners would rush to implement ARIMA, HoltsWinter model etc. for base forecast generation. Once we have one statistical number, sometime it becomes difficult to explain the forecast to Introductory Stage

Growth Stage

Maturity Stage

we should forecast at Factoryproduct group level. But this is not always practical. We have to forecast at lower level- mostly at CFA- product level but chances of error increases. We can control this problem to an extent by: Checking the Trend Signal If demand is stable or growing/ de-growing with almost similar pace at cluster/region/National level- forecasting at identified aggregated level is suitable.

Aggregated forecast can then be disaggregated at lower level. Geographical clubbing is important.

Decline Stage

Sales Revenue

0

Forecast at aggregated level

Profits Time

other stakeholders (all of them don’t understand ARIMA ).

Internal factors don’t change so drastically that it can’t be captured by basic statistical model. Huge Variation in forecast is mostly on account of external factors like competition, natural factorsrain, earthquakes etc. if we can see the possible incremental impact of external factors, basic statistical model should give us better forecast, and anyways simplicity will be an added advantage.

2. Top Down or Bottom up Generally, the forecasts are more accurate at aggregate level than at granular level. This helps in dividing error at aggregate level to tactical level thus helping in smaller error. By this logic,

If sales trend varies across locations, although aggregated forecast can give almost correct forecast at higher level, but disaggregation will not be as accurate as in above case. In such cases, forecast at lower level becomes necessary to capture the individual trend/ seasonality.

Also, senior executives in organizations are least interested in CFA/Depot wise forecast.

However logistics teams have other priorities. Similarly, marketing teams are more interested in national- Brand level forecast while production team wants only product wise forecast.

3. Is Consensus forecast correct forecast?

Sales pushes for lower forecast and higher achievement while

marketing pushes for higher forecast. Statistical forecast only considers historical trend and seasonality-impact of promotional events, competitive activities, change in consumer behavior etc. are subjective questions and hence leads to error. In such cases, two output are expected-

demand signal and responsive supply chain. Demand Panning process extends beyond forecasting by establishing common and customized KPIs to analyze how well forecasting process is working.

Who shouts louder gets heard Or Agreement on one number so called Consensus Forecast For B& C class SKUs, keeping slightly high inventory should not be a problem. This is required considering low demand vs production run size.

And by the nature of consensus forecast, it is set to be an average forecast which is always not very accurate. However, it is not necessary to follow the above process for all products. This process should be kept aside for only those SKUs which are in launch or growth phase or having some promotional activity.

We all know simple but powerful principle of 80-20. Detailed inputs and timely actions on feedback is very important for high value products. Hence forecasting for such products becomes more critical.

As forecast is never accurate, we need to handle the inaccuracies accordingly For High value items, inaccurate demand forecast should not result into sales loss. While inventory obsolescence cost might be very high for these items, only resort is close monitoring of

4. Emphasis from Top No process can become successful unless the benefit are seen at the ground level.

Main Stakeholders to forecast are Demand planner and Sales team. Sales team can give input considering stock availability in mind and if they can influence the stock availability through other channels, focus on forecasting process reduces accordingly.

Hence it becomes very important to have focus from top management to be very careful in forecasting process. Some suggestions Sales Forecast accuracy should be part of Sales team’s goal sheet. This will ensure entire team working towards one goal. If possible, forecast BIAS can be reduced if Sales target are separated from forecast but this problem is quite complex.

Weekly dashboard on performance- publishing weekly dashboard on forecast will help in two ways- correct

the forecast for next months and influence the sales for current month to an extent if possible.

Mid-Month Forecast revisionfor class A SKUs with relatively faster response time can be reviewed mid-month and intimated across supply chain.

This will indeed help in lower sales loss.

Sales pushes for lower forecast and higher achievement while marketing pushes for higher forecast 5. Final resort- S&OP Traditional supply chain are designed to respond- not to sense. Creating an adaptable system that can sense and respond to the demand requires a radical change in traditional model. Getting visibility of more accurate demand and supply plan can provide reliable input to the sales and operations planning (S&OP) team. The greater contribution of S&OP to organization is to collect information as close to the demand signal and furnish the joint action plan.

The objective of S&OP is to bridge the gap between in Demand & Supply and action as per latest information. This can only happen through building faster response time. Hence, an excellent demand planning process ensures the S&OP process is fed the most accurate and timely possible forecasting insights. This can encourage insightful internal discussion between Sales, Marketing and production for further action plan.

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SME Corner

Financing Make in

India

The debate rages on – Make in India as envisioned by the Prime Minister or Make for India as espoused by the Governor of the Reserve Bank of India. All things considered, domestic consumption will support a growth of seven percent. TO reach the double digit growth we aspire for, we need to tap the export markets. And this means having a set of financing options that will make us globally competitive. Export financing for SME’s is a major hurdle.

Editor of SCMPro Girish V S examines the export financing options for an SME.

S

MEs are the back bone of the economy. China harnessed the power of SMEs to catapult itself to the factory of the world status.

Working in the relatively benign domestic environment offers the SME a degree of protection from the vagaries of international trade. However, as they step out into global markets, they need to master quite a few new skills if they have to compete in the complex and risky global business environment. The Indian SME’s contribute around 40 percent of the total exports of the country. International foray will enable SMEs to realize their true potential. It would also help them exploit a plethora of new opportunities like better price realization, new markets, best of breed business practices, economies of scale, scope, volume, capability and avenues of spreading their risks.

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Demand for products is one side of the equation. And fortunately for us, there is a latent demand for products from India. But being able to manufacture them at an acceptable price point, with quality inputs is another matter. And financing is a deal breaker for most Indian firms. The domestic markets perceive SMEs as high risk entities – not worthy of a rating above BBB! And this immediately ups their cost of funds to around 14 to 16 percent!

Under these rates, there is no way Indian SMEs can compete with China. We need a better export financing scheme for SMEs. Barriers to formal finance: financial institutions’ perspective The banking system is waking up to the potential of SME as a new avenue for loan growth.

Yet SME loans are a small percentage of a banks over all

loan portfolio. This is because of a number of reasons. To begin with the transaction costs for SME loans are higher – SMEs are typically small ticket lending and often more time consuming to assess, monitor and manage.

SMEs often cannot provide banks with the basic information required to facilitate efficient risk assessment. Audited financial statements, formal business plans, credit reports are inputs to conventional credit assessments. SMEs find these difficult to provide. The diversity and opaqueness of SME businesses further contributes to the view among bankers that SME lending is challenging, risky and generates lower returns than other transactions. The second challenge is information asymmetry. SME business owners are loath to disclose more information than is absolutely necessary. This creates an

opaque barrier. And rightly so, banks do not wish to lend under these circumstances.

An associated issue is the lack of collateral –especially financial collateral under the Basel II guidelines. Even if there is adequate collateral, by the time a default happens, the collateral value would have eroded, leaving the banks with a big gap. A fourth business challenge is the sustainability of the SME. Since most SMEs do not have the deep pockets or the process orientation, they are likely to succumb to the ebb and tide of the business ecosystem.

During downturn, they will be the hardest hit. This greater probability of default is another reason why banks are reluctant to lend to an SME. SMEs struggle to identify their financing needs and the source of financing even for domestic business, leave alone exports.

The cornerstone for make in India is the ability of SMEs to produce and sell across the globe. And a key ingredient

for export competitiveness is access to cheap financing. The vagaries of business means SMEs need to rely on external sources of funding. One such financing avenue for export financing is the generic trade finance. Trade finance is a short term, transaction based product available to firms. It is intended to meet the financing requirements of import and export transactions.

Trade finance is an excellent, cost-effective alternative to borrowing as compared to other bank facilities. It is attractive in that it does not impact the capital structure of an enterprise the way that debt or equity-based financing will.

SMEs can use trade finance for any of the below transactions: ●● Payment facilitation, enabling secure and timely payment across borders. ●● Financing to one or more parties in a trade transaction, whether it be the importer, exporter, or one of the banks. ●● Risk mitigation, either through the features available in a

trade financing mechanism, or insurance and/ or guarantee products. ●● Providing information on the movement of goods and/or the status of the related financial flows.

A little used product for financing is factoring. Factoring is a continuing arrangement between a financial institution (the Factor) and a business concern (the client), selling goods or services to trade customers. The Factor purchases the client’s book debts (account receivables) either with or without recourse to the client.

The Factor performs at least two of the following services: ●● Financing for the seller, by way of advance payments ●● Maintenance of accounts relating to the account receivables ●● Collection of account receivables ●● Credit protection against default in payment by the buyer

Factoring Flow

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SME Corner

Selected innovators’ business models for SME Financing Agora Partnership (US)

Business Partners of South Africa

Agora combines non-profit consulting with forprofit venture funding. For the consulting part, it partners with business schools in the United States or Nicaragua (where it is active) by matching a team of students from these schools with potentially high growth entrepreneurs who normally run a small business. The entrepreneur is selected on the basis of the quality of his business plan, product viability, financial opportunity, social and environmental value, and management team. The matching idea is for the business school students to help entrepreneurs analyze their constraints to growth, and assist them in solving a strategy or marketing problem. After being coached by studentconsultants, Agora Venture provides grants to the most promising funding in the range of US$ 25,000 to US$ 250,000. Funded companies are closely monitored and continue to receive education and technical assistance.

Business Partners of South Africa (BP) couples technical assistance with a variety of equity and quasi-equity instruments that allows it to reap the upside of its investments and allow borrowers to enjoy low initial payments on financing. Its investments range between US$ 50,000 and US$ 1 million. BP has successfully employed debt and royalty schemes that allow lenient repayment terms on the debt for the first months of the loans, after which royalty-sharing kicks in. It compares the internal rate of return that a prime loan would generate against the realistic ability of the business to pay; the difference is then covered with a revenue-sharing agreement lasting until the gap is filled. In a few cases, BP uses a debt/royalty/equity model with the equity stake ranging between 25% and 35%. BP provides technical assistance and support that is subsidized but not free.

SME Bank of Thailand The SME Bank of Thailand runs for its clients an entrepreneur health-check program called the SHINDAN program. It aims to help small businesses improve their operations. Under the program, companies will ascertain the quality and effectiveness of their business processes. As a diagnostics and consultancy service, the SHINDAN program helps SME Bank clients to know or anticipate problems in their businesses, identify possible solutions, and seek support from the bank and its partners. The areas of diagnosis include marketing, production, finance and accounting, and human resources. The service is provided free.

SME advances, on the other hand, registered a negative growth of 2.37% in FY 2014 mainly due to decline in high yielding advances and continuing naps. a pilot was run to correct the flaws in the current model of SME delivery. the pilot has since been successfully concluded and a national roll out is commencing shortly. under the new model, in order to provide specialised services to SME entrepreneurs as well as timely and adequate credit to this segment, 579 branches with a predominant portfolio of SME advances are being branded as ‘’SME Branches’’. the objective is to identify these branches with a common nomenclature and develop them as centres of excellence for SME loan delivery.

From the speech of Smt. Arundati Bhattacharya, Chairman SBI at SBI AGM

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SCM News

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May 2015 SCMPr

Industry Interface

Growth Through Creativity and Innovation Following its global management vision, Toshiba Logistics India aims to pursue action plans for Growth through Creativity and Innovation by seeking Value Creation, pursuing Productivity Improvement, globally developing diverse creative talent and moving forward with CSR management. SCMPro caught up with Mr. Hidenori Kanakuba, Managing Director, TLGI for a chat on the logistics scene in India.

What are the hot spots for logistics in India? How does it compare to the global trend?

Mr. Hidenori Kanakuba, Managing Director, TLGI

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A key driver of the Indian economy – Infrastructure, is highly responsible for propelling India’s overall development.

The industry enjoys intense focus from the top officials of the Government for initiating policies that would ensure timebound creation of world class infrastructure in the country.

This sector includes power, bridges, dams, roads and urban infrastructure development.

Indian port sector is poised to mark great progress in the years to come. India has a coastline spanning 7516.6 kilometers, forming one of the biggest peninsulas in the world. It is serviced by 13 major ports, 200 notified minor and intermediate ports. It is forecasted that by the end of 2017 port traffic will amount to 943.06 MT for India’s major ports and 815.20 MT for its minor ports.

Taking these developments and focus areas into consideration,

we believe that major manufacturing and shipping hubs for critical heavy industries across India will be the major hot spots for logistics activities in India.

On-time, every time is a challenge in India. How do you plan to transform this?

The logistics operations in India are technically challenging and on growing stages with utmost focus into big projects. With a diverse and vast opportunity in Indian logistic sector, many companies want to set-up their base in India. With the government’s thrust on “Make in India” policy, India will evolve not only as a huge domestic market, but also an export hub. Logistics will play a pivotal role in India strengthening its socio-economic fabric.

However, timely and secure delivery of heavy industrial equipments continue to remain a major challenge as a lot of external aspects like weather and season, local festivals etc. factor in.

Ensuring the timely and secure delivery of products, Toshiba Logistics will offer reliable and extensive range of solutions/products to meet the requirements of the complete supply chain. With our global expertise and solutions that are a testimony to the “Toshiba” brand quality, we will offer similar high quality, safety and timely product delivery to gain trust from clients.

We have qualified and skilled team that understands very well core logistics and promptly ready to tend ourselves for resolving to our customer’s problems. As part

of the Toshiba group, we have technical know-how for handling delicate equipment such as heavy electrical machinery.

We are specialized in handling such kind of shipments and also set up machine after delivery and provide Logistics Engineer, Packing Engineer services too, offering a value-added service to our clients.

Toshiba Logistics India (TLGI) utilizes state-of-the-art technology solutions that include a sophisticated Packaging Strength Testing (PST) and Packaging Design Technology (PDT) that calculate packing strength by the characteristic of the products and prepare custommade packages; and perform a packing design in conformity to transport equipment such like container, size of truck etc. from production stage and try for the improvement of the loading efficiency. By utilizing a full range of advanced technologies, TLGI delivers a greater ROI for its customers.

Other technologies used by Toshiba Logistics in other countries include a sophisticated Warehouse Management System (WMS) and Transportation Management System (TMS). WMS provides superior warehouse efficiency and order fulfillment, and gives full visibility from receiving to shipping. Our advanced TMS improves the efficiency of our transportation operations and enables our customers to track their shipments across the globe. We also use cutting edge import and export systems that efficiently moves shipments through customs and minimizes delays. In addition, we maintain a customer

product dictionary with HTS classifications.

Our technology solutions can integrate with any Order Management System/ERP system. Because we have standardized our interfaces and use proven methodology, we have significantly reduced the implementation cycle for new customers.

Data security is a top priority at Toshiba Logistics. We use only the latest security protocols and adhere to the most rigorous data protection policies to make sure our clients’ data integrity and privacy are not compromised. Our systems are stored in a secure facility with extensive backup and disaster recovery systems in place.

Can wearable technology truly change the logistics landscape?

Wearable technology when used efficiently and innovatively for any business can prove to be a boon. The applications of wearable technology in the logistics domain are plenty and the technology itself being an adolescent, can be nurtured and developed into a game changer.

Current applications of the technology allows for a speedier quality and inventory checks.

A worker in a warehouse could use a wrist-mounted device with a touch screen and a barcode reader embedded on a finger scanner to count stock and do quality inspections. This would not only cut down the time taken to complete a task, but it could also improve accuracy by recording data electronically directly on the asset.

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Industry Interface

Wearables could also facilitate maintenance by providing reference materials, instructions and a way to communicate with technicians who would guide a user through a repair. The IoT (Internet of Things) application could also allow for an automatic interaction within processes allowing greater accessibility to information and knowledge without the burdens of traditional computing technology.

However, one needs to consider the limitation of the currently available technology as the hardware is predominantly dependent on the software that could interact with the process to deliver faster and accurate results. It will take longer for wearable devices to be deployed on ground because of network connectivity challenges and concerns about information overload.

What are your long term plans for India?

In India, the logistic sector is vast as well as technically challenging. Secure and timely transportation of large scale products is very important for social infrastructure business.

Identifying and selecting best transportation route for timely and safe delivery of large-scaled industrial products is a major challenge. TLGI is uniquely positioned to provide Toshiba group companies with the most comprehensive set of solutions available for all their logistics needs. The Company’s goal is to continue delivering innovative, customized and high-quality services, for which it will adhere to the established know-how of the existing solutions as well

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as simultaneously exploring the opportunities to provide customers with additional value in new areas.

With the government’s thrust on “Make in India” policy, India will evolve not only as a huge domestic market, but also an export hub In India, Toshiba is expanding its social infrastructure business by providing the various products such as super-critical steam turbine and generators, transmission and distribution equipment, motor and inverter.

Toshiba Logistics wants to cater excellence and efficient services as well as cost-centric solution to all Toshiba group companies situated into India.

Also India is an emerging market and many international companies are investing in Indian economy. Toshiba Logistics aims to become logistics partner for such businesses by offering comprehensive logistics solutions starting from transportation engineering, packing/repacking, order processing, Excise and Customs compliance and clearance, to timely and accurate delivery anywhere within India.

Following the management principles of Toshiba Corporation, we would like to contribute to socio-economic fabric of India and become an integral part of society.

What are the growth winners for 3PL players?

3PL service providers specialize in handling varied logistics

function ranging from transportation, warehousing to freight services, along with various added services to clients.

Key factors for business growth for 3PL players include good liaison for smooth and efficient custom clearance; identifying and efficiently operating the route of the international intermodal transport; and cordial relations with international logistics vendors and experience in global markets.

How do you market a logistics service provider in a commoditized market place?

We have to look for a good niche market of logistics. A good niche market means there are a few competitors in the market and your customers can rely on you for these specialized services.

Some specific niche markets where specialized services can be a major distinguisher includes – consultation on smooth custom clearance in India for overseas customers (companies); Heavy product logistics (including proper packing for enduring rough handling and tough road condition).

How can you create a culture of innovation within a logistics organization?

In India, our operation are also are on the early learning curve. Following our global management vision, we aim to pursue action plans for Growth through Creativity and Innovation by seeking Value Creation, pursuing Productivity Improvement, globally developing diverse creative talent and moving forward with CSR management.

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LSP Focus

Modernizing

Farm to Fork

Supply Chain in India One of the most important functions of a supply chain is to move the agri and food products from the farm to fork, with multiple stops on the way. Anecdotal evidence shows that close to 40 percent of the agri produce of the country is wasted, before it reached the table. This wastage has to be recovered from the produce sold, pushing up prices. Editor of SCMPro, Girish V S spoke to Tarun Arora, Director of IG International, one of the largest fresh produce dealers in the country on the fresh produce supply chain challenges in India. We bring you excerpts from the interview.

I

Tarun Arora, Director of IG International

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G international (IGI) is India’s largest fresh produce handlers – close to 80,000 tons annually, in both imports and exports. To support their operations, IGI has its own logistics support – own reefer trucks in all sizes, the second largest cod chain network in India, and has consistently invested in the business. A significant boost to the fresh produce business was the liberalization in 1999 when the country was opened to imports of fresh produce. A fallout of which was people learnt the best practices from USA, Australia, New Zealand and other developed countries. This opening up was critical across the value chain. For example, thirty years ago, a 20 kilo box of apples would fetch the farmer anywhere between INR 200 to 600 depending on the arrivals in the market. Cold chains were not so well developed, that the excess could be stored for later release.

As markets opened up, the farmers also realized that they could fetch much higher prices.

Today a similar box fetches INR 2500. The farmers have also changed – some of them have junked the old wooden boxes for corrugated boxes. Slowly best practices from overseas are being adopted in India.

However, there are significant challenges – the foremost being the overwhelming presence of middle men in the agri value chain. When there are too many individual entities playing independent roles, it is difficult to bring in standardization in the services. Standardization has to start from the farm itself. The produce has to be moved from the farm to the pack house. Today we do not have pack houses. Which means the packing has to be done on the farm. Even here, there is no standardization. Farmers pack in different sizes – 2 kg, 10Kg, 20 Kg, in wooden crates, corrugated boxes- there are too many permutations at work here.

Compare this to the situation in the US. In the US the produce is moved to the pack house, where it is pre-cooled, sent to the packing

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Initiative

LSP Focus

line and then boxed. The produce then has to move from the pack house to the market and further on to the shelves in refrigerated trucks. Moreover, everything is tested – for imported produce we test for residue levels as per FSSAI norms. It is time we extend this to domestic produce too.

We need to compare this with the domestic scenario. There are no pack houses and no pre-coolers.

We tend to over load the trucks, a 20 footer which can hold 14 tons will be stuffed with 20 tons, and that too without refrigeration.

The produce gets compressed and when this reaches the market, they re-pack it. This leads to the wastage we talked about.

And unfortunately, the farmer pays for this wastage through lower prices.

A major reason why farmers do not invest in pre-coolers is the small size of the farm – a couple of acres per farmer. This makes any such investment expensive.

However, there is one experiment we have not looked at in India – the cooperative. If the farmers pool their farms, we will have the size advantage. Assuming we have a 1000 farms of an acre each, we can have the benefit of a 1000 acre farm cooperative. If we compare this with Bolzano in Italy – a place similar to Kinnaur in Himachal Pradesh. Bolzano is a mountainous city, and hence the farm size is small – more of step agriculture. But they have formed a cooperative – one of the world’s largest cooperative operates out of Bolzano. They have just one pre-sorter, where the produce is put in water and sent across the sorting line to be put into bins based on size, color and other features. And the response time

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from the farm to the bin is less than six hours. That is how you preserve and improve the shelf life of the product. Again in the US, it takes less than two hours to pre-cool a product. In India we take 24 hours. This iswhere we need to really improve ourselves.

Cooperatives may not be the best way ahead for us in India.

If at all cooperatives have to come up, it has to growers efforts than a marketers effort.

It is very difficult to organize farmers into a cooperative. The model followed by most players in India is different. A trader approaches a farmer and offers him a deal based on the existing information. The farmer will get that amount irrespective of the actual produce. The risk, in this case, is borne by the trader. IGI is trying to introduce a change in the system. IGI is investing in technology to make a difference.

IGI has invested in a packing line, to ensure that it is not buying the wrong product. IGI is proposing a model where the farmer will be paid as per the produce offered.

The packing line and sorter will automatically sort the produce and based on the color, size and pressure test result, the farmer will be paid.

Moving Beyond Five years ago IGI was focused on importing fresh produce into India. The currency deprecation forced a change in direction.

Import exposes a firm to currency risk. To mitigate currency risk, IGI has been aggressive on export for the past four years. IGI is one of the top ten exporters of fresh produce. Apart from this, IGI is also into domestic produce – citrus, apples etc.

To keep up with its vision of becoming India’s leading fresh produce firm, IGI is looking at acquisitions outside India. IGI is looking at a greenhouse firm in Canada, and has invested in cherry farms. This is a diversification for IGI – to reduce the risk of being just a trader, focused on a geography. India will continue to be the core for IGI’s growth. However, a geographic diversification would reduce the exposure to only India. The investments in other countries will give IGI access to best practices which it would like to adapt for India. With this in mind, IGI is looking at further investments of around INR 100 crores into India.

When there are too many individual entities playing independent roles, it is difficult to bring in standardization in the services As a part of better asset utilization, IGI is now foraying into the domestic fresh produce sales too. Till date, IGI sent its imported produce from Mumbai to Delhi by road, and the trucks came back empty. Today, with the setting up of four facilities in Himachal, the return leg too is productive. This makes IGI the largest domestic apple handlers in India.

With a few smart moves, IGI is poised to usher in the best practices in the Farm to Fork supply chain in India. And in the bargain, reduce the farmer distress, by ensuring pricing commensurate with the quality of produce.

What Inspires us More: Play or Participation?

There has been a lot of research, time, and money undertaken on finding new ways to motivate, retain, and attract staff. This is understandable in an age of market volatility were a business edge can also determine a company’s survival and at the heart of every company’s success lies its people. Darryl Judd, COO Logistics Executive, brings you an insight into motivating and retaining talent.

T

he value of a highly sort after skill set or reputation is becoming increasingly more valuable in an age of high market volatility were the stakes are high. As a result, “talent wars” still play out and so do the challenges of staff retention in ever competitive market environments.

Globalization means that there is no longer the safety net of a geographical barrier and big multinationals seeking best talent are now headhunting in new ways, across different geographies and institutions like never before. If you have good staff, if you have actually achieved the impossible and managed to attract and hire a great team, how do you keep them and keep them engaged?

Darryl Judd Global Chief Operating Officer, Logistics Executive Group

How do companies compete with the likes of Google, Microsoft, and other highly successful multinationals that are renowned for their hype around edgy employer branding? The image of the young, “trendy” maverick who rewrites the corporate rulebook.

These big multinationals are notorious for splashing out on all sorts of attractive ploys to win the best talent. For example,

they have turned their office work environments into the equivalent of over the top, adult play pens in which the corporate uniform corresponds to the sneakers and jeans worn in such places.

A quick Google of Google’s office environment will lead to pictures of giant mock rowing boats in a Google London office, a bowling alley with a statement describing their staff as “googlers” whose “offices and cafes are designed to encourage interactions …and to spark conversation about work as well as play”. Play being the central word!

According to the Business Insider1, many corporates have followed this trend across industries. They compete in terms of company perks instead of salary. For example, Chesapeake Energy has an indoor rock climbing wall; J.M. Smucker Company holds bowling nights and softball games for its employees and so on. Free day care, overseas holidays, and a range of other offerings are all paraded as enticements to allure potential employees.

Before we all rush out and invest in Lego sets and pinball

1 Business Insider: http://www.businessinsider.com/companies-with-awesome-perks-payscale-2013-1?op=1#ixzz3UWflALlq

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Human Resource

machines, it is worth reflecting on whether this new trend actually has some basis. There is some evidence to suggest that successful formula for a productive workforce may be based on a more basic requirement.

According to Kim Winter, Group CEO for Specialist Talent Management and Corporate Advisory Firm, Logistics Executive Group, it is not just about the environment and the culture of an organization, but that of their leaders and their focus on personal inspiration. Leaders who empower their workforce and allow freedom of decisionmaking, open dialogue and support foster an environment of inspiration. This inspiration translates as personal motivation and sets a cultural road map for the organization”.

The annual Logistics Executive Group survey results have consistently suggested that there are two main reasons why people leave their job. The most common reason is they feel they are not being challenged enough or given enough opportunities.

The other reason of equal weight is related to not getting along with their manager. Both these explanations are reiterated in the interviews and conversations that our teams have with candidates on a daily basis.

Controversially, it may therefore be suggested that a fun office environment may not actually be a key motivator for many people to stay in a job. In fact, it could be suggested that if “happiness” is the key outcome that a company is trying to emulate it might suppress staff from actually voicing their opinions if they feel otherwise. Perhaps trying to

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define happiness is taking things one-step too far and it is better leaving this to the individual.

Perhaps it is better for employees to openly discuss opposing views.

In fact, the ability to discuss different points of view or even conflicts in a non-threatening, way is not only extremely healthy but also an invaluable way to bring a team closer together.

Validating different points of view has the ultimate effect of creating a more creative and cohesive unit.

This openness also has the benefit of creating an environment whereby teams are united and focused on solving collective problems.

For example, the case of an international chemical company that has a factory of 50 staff in Australia and several thousand people working for them in China.

According to their safety incident report, Australia had 300% more safety incidents at their plant than the entire Chinese operation. The differences upon further investigation were clearly related to how the information was being collated or rather not. It was clear that the difference came from the way that management was treating the issue. The management team in Australia where extremely safety focused. They held regular toolbox meetings and underwent ongoing safety awareness training. However, their Chinese counterparts thought incidents denoted a failure and therefore found ways to avoid reporting them. For the company, which was publicly listed to meet its reporting requirements, the Chinese operation needed to be retrained to see the benefit of sharing information. They

needed to learn that a safety incident could be an opportunity to improve things and not a failure.

This example also highlights the interesting point that differences, such as different cultures can actually stimulate and challenge teams in a positive way. As mentioned, people leave their jobs because they are not being challenged. One of the key ways to offer them a new learning is by exposing them to a new way of thinking. This goes against the rule that most human resources teams employ which is to try to match “cultural fit” when recruiting new hires. A more astute way of thinking would be to hire not to who your team is today but to hire based on were they need to be in the future.

New team members may offer differences that your team will find challenging but which they can learn from.

It comes down to offering staff authentic experiences that will challenge and stimulate them and ultimately make them feel a worthwhile member of your team.

In conclusion, employee perks can be a great way to incentivize staff, as long as these inclusions are part of a deeper strategy.

Leaders who understand staff needs at a basic human level shape a productive team. It is a fine balance that allows teams to self-actualize and companies to excel. It requires and an environment which is nonthreatening but challenging, inclusive, not homogeneous. A leader who has undergone selfreflection, made mistakes to know the nuances and levers to pull to get it right, and a clear vision, can attain this delicate balance.

2nd

India Supply Chain Strategy Summit 2015

A Thought Leadership Initiative...

Theme: Building Supply Chain Alignment in the New Networked World

Design and operation of contemporary supply chains plays a major role in the performance of the enterprise. Supply chains have out grown the one size fit all approach. The need of the hour is to define customer driven supply chain – the demand chain – based on design thinking principles. The 2nd India Supply Chain Strategy Summit will explore the contours of the emerging paradigm in supply chains, and the changes it brings to the enterprise.

Who should attend?

India’s most important gathering of supply chain leaders, including: CXO’s and senior supply chain professionals from Sourcing, Distribution, Transportation, Planning, Demand Management, Supplier Relations, Quality and Regulations.

Agenda •• •• •• ••

Using design thinking in supply chains Digitization of Supply Chains – the Way Forward Coping with Disruptions in Supply Chains Project Supply Chain – Delivering Value

•• •• •• ••

CEO Panel – Perspectives on Supply Chains in India Supply Chains and Cross Border Trade Supply Chains for a Mobile world SMAC in Supply Chains

Conference Fee: Rs. 15,000/- Plus Taxes

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Industry Interface

Hi-Tech Logistics There are logistics service providers and there are Hi-Tech service providers. Unlike the traditional products, hi-tech products present quite a few challenges – from fragile equipment to smaller quantities to agile supply chains, hi-tech calls for a differentiated approach. SCMPro spoke to the MD of Rhenus Logistics, Mr. Vivek Arya on the prospects of Hi-Tech logistics in India.

What differentiates hi-tech logistics from the other products?

The value of the products handled in Hi Tech Logistics is on an average much higher.

More important is the fact that we at Rhenus also support the placement and installation of the product at the final point of use.

This can be a gaming machine, an ATM, a MRI machine or a CT scanner. Our people have gone through specialized training and education for handling these products and are the key people

Vivek Arya MD, Rhenus Logistics

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A demanding 3PL may challenge the manufacturer to have forecast meetings and therefore also facilitates this

delivering the service on behalf of our customers to their customers.

It takes quite a bit of time to train people and to understand the requirements.

What are the emerging trends in hi-tech logistics? What is the future?

It is our endeavor to support our customers in the so called 2 mean distribution. Products as such may get smaller however some products require quick time to deliver and this is what we can handle with utmost ease and care. Packaging is also limited, so customers do not spend too much time and money on developing packaging.

It is important to show more transparency along the supply chain and therefore also along the final mile and installation

process. Real time information on progress, pictures at the point of time when handed over and a larger product portfolio to be handled.

How can high-tech firms feel confident that their products are secure and that they’re following proper procedures when moving their products?

What is the role of a 3PL in improving the ability of the manufacturer to predict demand?

Best is to call out for references and ask customers already working together with Rhenus.

We are also happy to show customers our facilities and operations and they will get a first-hand insight in how we as Rhenus manage processes.

3 PL will not be able to predict demand on behalf of the manufacturer. However the systems he uses can provide historic data. More importantly they can jointly decide what key data is crucial for demand planning and how additional information can be provided by the 3PL and its systems. Last but not least a demanding 3PL may challenge the manufacturer to have forecast meetings and therefore also facilitates this.

Reverse Logistics is a part of Hi-Tech logistics – what are the solutions you suggest?

The Reverse Logistics process is one of the most complex one in logistics. There is not one size fits all approach according to our experience. The critical aspects need to be jointly discussed with

the customer for optimizing reverse logistics.

Hi-tech products need an agile supply chain. How would you control costs in such a scenario?

Rhenus India is an integrated logistics solutions service provider and believes in creating cost efficiencies for its customers. We would handle the complete end to end logistics, thus eliminating the need for the customer to appoint multiple vendors this leading to cost savings and saving of time.

Are mid-sized firms a good business proposition for 3PL service providers?

Yes, mid-sized firms can immediately benefit from our scalable solutions and have within a couple of weeks access to a global logistics reach.

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SCM Classroom

Minimizing the Impact of

Bullwhip Effect

Over the past two issues, SCM Classroom has explored the concept of Bullwhip effect in supply chains. First formally identified by P&G based on the order patterns for Pampers, bullwhip results in increased costs and reduced product profitability. In the previous article, we looked at measuring the bullwhip effect. In this article, Dr. Rakesh Singh explores methods to minimize the impact of Bullwhip effect.

P

redicting demand is the starting point of production planning.

Demand prediction starts with understanding customer preferences. Long back when P&G executives looked at the order patterns for Pampers, they observed that the retail sales were not fluctuating – after all babies do not soil more based on seasons – but the orders to their suppliers showed huge variations. Somehow, the demand variations were amplified as it moved up the supply chain.

This was called as the “bullwhip effect”. Bullwhip has an impact on the supply chain. If a supply chain’s function is to convey the right demand to the production, and the right goods to the customer, it needs to reduce the distortions to this information. An amplified demand will result in over production. Over production will result in excess inventory, which in turn will lead to costly capital tied up in non-productive inventory. This pushes up overall costs and reduces the supply chain surplus.

Rakesh Singh, Chairman ISCM and Distinguished Visiting Professor of Supply Chain and Strategy, Great Lakes Institute of Management, Chennai.

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We need to recognize that information flows in a supply

chain are as vital a component as the flow of goods and finances.

One way to reduce the impact of bullwhip is to ensure that the right information is available to all entities in the supply chain at the same time. Various authors have dealt with the issue of minimizing demand amplification due to bullwhip effect. According to Forrester (1961), the solution to the phenomenon of bullwhip was to understand the system as a whole and model the system with specific simulation model in order for managers to better determine appropriate action.

Lee et al (1997) suggest that instead of repetitive processing of consumption data in the supply chain, it would be wiser to make demand data at the downstream site available to the upstream site. Hence, both sites can update their forecast with the same data. They suggest that reducing the bullwhip effect is to reduce the uncertainty throughout the supply chain by centralizing the demand information, i.e., providing each stage in the supply chain with actual customer demand information. Chen et al (2000), while studying the impact of

forecasting, lead-times and information on the bullwhip effect, demonstrated that providing each stage of the supply chain with complete access to customer demand information can significantly reduce the increase in variability.

However, they felt that the bullwhip will still remain even when demand information is shared by all stages of the supply chain and all stages use the same forecasting technique and inventory policy.

Will having access to the same information eliminate bullwhip?

Research by Simchi-Levi et al (2000), shows this need not be the case. Dealing with the problem of the bullwhip effect and centralized information, they demonstrated that centralized demand information can significantly reduce, but will not eliminate the bullwhip effect. Bullwhip exists even when demand information is completely centralized and all the stages in the supply chain use same forecasting techniques and inventory policy.

According to Simchi-Levi et al (2000), variance of the order placed by the second stage of the supply chain is an increasing function of the lead-time.

Variability increases in a similar manner at all stages of the supply chain. Thus, lead-time reduction can significantly reduce the bullwhip effect throughout the supply chain. Earlier on, Lee and Padmanabhan (1997) also opined that long supply lead-times can aggravate the bullwhip effect.

Improvements in the operational efficiency can help reduce the high variable demand due to multiple forecast updates. Hence

Just In Time (JIT) replenishment is an effective way to mitigate the effect.

Scheduled ordering policies influence the propagation

can reduce the incentive for retail forward buying, by establishing a uniform wholesale buying policy. According to Simchi-Levi et al (1998), the bullwhip effect can be diminished by reducing

Bullwhip Effect illustrated Customer Customer Order Spike

Warehouse Warehouse increases orders

Distribution Center

DC increases orders

Plant/ Suppllier

Source: http://ygraph.com

of demand variance within a supply chain. Lee et al (1997), demonstrated that the suppliers demand variance is maximized when the retailer’s orders are synchronized. Gerard (1999), in his research found that two strategies were found to reduce the suppliers demand variance and also reduce total supply costs. The first, balancing retail order intervals, is effective in a broad range of conditions. The second is a flexible quantity strategy; so that the retailers’ order frequency is kept relatively constant.

Lee et al (1997) believe that the simplest way to control the bullwhip effect caused by forward-buying and diversions is to reduce both the frequency and the level of wholesale price discounting. The manufacturer

the variability inherent in the customer demand process. They suggest everyday low-pricing (EDLP) strategy. When a retailer uses EDLP, it offers a product at a single consistent price, rather than offering a regular price with periodic price promotions. By eliminating price promotions, a retailer can eliminate many of the shifts that occur along with these promotions. Therefore, EDLP can lead to much more stable – that is, less variable – customer demand patterns.

Lee et al (1997) and Simchi-Levi et al (2000), suggest eliminating gaming in shortages situation.

When a supplier faces a shortage, instead of allocating products based on orders, it can allocate in proportion to the past sales records. Customers then have no incentives to exaggerate their orders.

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47

SCM Classroom

Engaging in a number of strategic partnerships can eliminate the bullwhip effect. These strategic partnerships change the way the information is shared and inventory is managed. SimchiLevi (2000) suggest VendorManaged Inventory (VMI), where the manufacturer maintains and manages the inventory at the retailers outlet, and, therefore, determines for himself how much inventory to keep on hand and how much to ship to the retailer in every period. Lee et al (1997) estimated that 80 percent of the transactions between the manufacturer and the distributors in the grocery industry were made in a forward-buy arrangement in which items were bought in advance of requirements, usually because of a manufacturer made attractive price offers. Forward buying constitutes $75 billion to $100 billion of inventories in the grocery industry. They too suggest stable, everyday low price.

Landvater (1997) has shown that statistical forecast models based

on point-of-sale (POS) data is the best for predicting consumption.

The major benefit of POS data is that it captures consumer take away, as such it reflects true independent demand. According to Kiely (1998-99, pp.6), another great advantage of using POS data to forecast consumption is that, by nature, this data is less variable than any other kind of customer demand data.

Various ways to reduce variability in the supply chain according to various researchers like

Towill et al (1992), Wikner (1992), Towill and McCullen (1999), and Kotler (1997) are summarized below. ● Remove an echelon, ●● Integrate information flow throughout the supply chain, ●● Reduce time delays through the supply chain, ●● Improve pipeline policy and suitably modify ordering algorithm, ●● Align promotion and trade discounts to overall forecasting practice.

Table: A framework for supply chain co-ordination initiatives Causes of Bullwhip

Information Sharing

Understanding system dynamics Use POS data Demand Forecast Update EDI Internet Computer-assisted ordering (CAO)

Order Batching

EDI Internet ordering

Channel Alignment

VMI

Lead-time reduction

Discount for information sharing

Echelon-based inventory control

Consumer direct

Discount for truckload assortment Delivery appointments Consolidation Logistics outsourcing

Reduction in fixed cost of ordering by EDI or e-commerce CAO

Price Fluctuations

--

Continuous replenishment program (CRP)

Everyday low cost (EDLC)

Shortage Gaming

Sharing sales, capacity, and inventory data

Allocation based on past sales

--

Source: Lee, Padmanabhan, and Whang (1997)

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Operational Efficiency

May 2015 SCMPr

JDA Software Positioned in the Leaders Quadrant in All Four Gartner Magic Quadrants Focused on Supply Chain Solutions

L

atest placement in Gartner Magic Quadrant on Sales & Operations Planning joins current status across Supply Chain Planning, Transportation Management and Warehouse Management Quadrants

Bangalore, India, May 14, 2015 –JDA Software Group, Inc. today announced that it is has been positioned by Gartner, Inc. in the “Leaders” quadrant of all four Magic Quadrants focused on supply chain. With the recent release of the “Magic Quadrant for Sales and Operations Planning Systems of Differentiation” in April and the “Magic Quadrant for Transportation Management Systems” in March, JDA is now a leader in all four supply chain-focused Magic Quadrants, which also include “Magic Quadrant for Supply Chain Planning Systems of Record,” and “Magic Quadrant for Warehouse Management Systems.”

Gartner’s Magic Quadrant reports position vendors within a particular quadrant based on their completeness of vision and ability to execute. In the Sales and Operations Planning Leaders’ Quadrant, JDA has been positioned the furthest for completeness of vision.

“We believe our positioning as a Leader in all four supply chain reports published by Gartner is a validation of JDA’s end-to-end planning and execution value proposition — along with our balanced investment strategy,” said Kelly Thomas, chief product officer, JDA Software. “JDA has an unmatched depth and breadth of supply chain solutions. We are delighted to be acknowledged as a Leader. Our solutions in sales and operations planning, transportation management, supply chain planning and warehouse management have helped our customers achieve significant strategic and financial advantages. Looking ahead, our entire team at JDA is committed to continue delivering customer value via our bestof-breed software solutions that support true supply chain transformation.”

US, China and India earmarked for UK e-commerce expansion

U

K e-commerce business leaders are turning their attention to high growth consumer markets in the US, China and India, according to a new report commissioned by business process outsourcing provider (BPO) arvato and World Business Research (WBR).

The research, which surveyed 78 UK e-commerce CEOs, managers and executives working in the beauty, fashion, FMCG and luxury sectors, reveals that 37 per cent of British firms are looking to grow their e-commerce offerings in the US, with 33 per cent and 30 per cent targeting the Chinese and Indian markets respectively.

In addition, 24 per cent are planning to expand their business into Europe, with a third of the companies researched already having an Online presence on the continent.

UK firms in fashion and beauty e-commerce are set to be the most active in the US, China and India, with 42 per cent and 40 per cent respectively planning for expansion in these markets. However, more than one in three companies across both sectors have undefined timescales for growth, with 15 per cent looking to implement their strategies over the next one to two years.

In comparison, 24 per cent of businesses in luxury and fast moving consumer goods (FMCG) plan to develop an offering in the US, China and India, with seven per cent looking to expand over the next couple of years.

Tony Matthews, head of e-commerce at arvato UK, commented; “International markets have a lot to offer British firms in e-commerce thanks to increasing activity on digital channels and a growing volume of digital savvy, middle class consumers with high purchasing power. However, establishing a new market presence can be a considerable challenge, and the high percentage of undefined timescales highlights nervousness among companies when it comes to expanding into new regions. In light of this, UK firms are increasingly looking for help, and are turning to external partners for assistance in handling parts of their e-commerce business.”

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49

SCM Updates

Delivery is critical in e-tail transactions, says DHL As e-commerce continues to gain popularity across the African continent, more effort needs to be paid towards facilitating flawless delivery to customers.

Sumesh Rahavendra, Head of Sales for DHL Express Sub Saharan Africa, says that the delivery of goods purchased online is one of the most important elements to a customer’s e-tailing experience, and yet is often overlooked by retailers.

DHL’s own Global E-Tailing 2025 study analyzed the role which e-commerce will play in consumers’ lives in the year 2025 and how it will influence consumerism, retail and logistics. The study found that as Online retail continues to gain popularity in both developed and emerging markets, logistics companies are set to play a key role in providing vital supply chain management solutions that are able to evolve with consumers’ changing shopping habits.

“With e-commerce quickly gaining traction in the continent, many companies are still determining what this boom will mean for their distribution network infrastructures. When e-commerce first entered the market, it was more about the convenience of ordering a product from home, and then waiting for the package to be delivered to your doorstop. Delivery times were a couple of days or even weeks. Today, the growing middle class across the continent want a greater variety of products and services within shorter delivery periods. Delivery time frames are now measured within minutes and hours and need to take place at a convenient time and location, dictated by the consumer.”

“E-commerce is also a saving grace for consumers in outlying areas, who would traditionally have had difficulty accessing brick and mortar stores.

International and domestic e-tailers now offer doorto-door delivery of a wide variety of high quality products.”

“E-tailers should therefore select a reliable and reputable logistics provider, as they are ultimately an extension of their own business, and an important touch point that end consumers have direct contact with towards the end of the transaction stage. Competition in the e-commerce industry is fierce so it is the importance to delight customers with every transaction to encourage repeat business,” concludes Rahavendra.

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May 2015 SCMPr

India will need 56 million strong skilled workforce in Retail by 2022 According to a report by National Skill Development Corporation (NSDC), India will need around 56 million strong workforce in the India’s booming Retail sector. This sector will have one of the highest incremental human resource requirement of 17.35 million from 2013-2022 across the 24 sectors that have been mapped for assessing incremental human resource requirement in the country.

According to the findings of the report, the Indian Retail industry estimated at USD 435 billion is expected to witness a CAGR of 18.1 percent over the next 4-5 years and reach USD 848 billion. There will be a considerable rise in demand for skilled manpower in this sector as the industry has been growing at a steady pace fueled by factors like changing lifestyles, rising disposable incomes, favorable demographics, and easy credit availability.

The report states that the sector contributes to 23% of the GDP, which is driven by an increasing Private Final Consumption Expenditure (PFCE) over the last few years growing from INR 19 Lakh Crores in 2005 to around INR 51 Lakh Crores in 2012. In terms of Foreign Direct Investment (FDI) – cumulative value of retail sector has more than doubled driven by liberalization in single brand retail norms growing.

Organized Retail is no more an urban phenomenon.

It is estimated that tier 2 and smaller cities will evolve fast to constitute majority share of the organized retail in coming years.

Commenting on the report, Dilip Chenoy, MD & CEO, NSDC said, “The potential for growth is huge in the sector. There are opportunities across various job roles in retail which the youth can capitalize on. The metro cities are the major consumption hubs and preferred destination for large scale retail. To match the requirement of skilled manpower we need to further scale up our efforts. The sector not only offers jobs but also entrepreneurship opportunities to the trained manpower.”

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ng i m

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Demand

DPR covers case studies, latest developments in forecasting and planning, research papers, research notes, discussion articles, book reviews, editorials and letters.

Planning

ISCM announces a quarterly journal

“Demand Planning Review” as a part of the Demand Planning and Forecasting Forum. The Journal will carry insightful articles, opinions, and research reports from a cross section of Industry professionals and experts from across the world. Demand Planning Review aims to act as a bridge between practitioners, academicians and policy makers, providing SMART inputs to the Demand Planning and Forecasting Function. DPR places strong emphasis on empirical studies, implementation research & ways of improving the practice of forecasting.

Review An ISCM Publication

Subscription

(one year 4 issues) India: 1500 Intl.: USD 200

Inaugural Issue – A Curtain Raiser

Editorial Board From Forecasting to Replenishment Demand Planning Review has Dr. Rakesh Sinha, an international Editorial Board including: COO and Head Supply Chain, Godrej Consumer Products Ltd Dr. John Gattorna n Forecasting and Demand Planning in Agrochemicals Executive Chairman of Gattorna Alignment Pty Ltd Susheel Mittal - BASF, Director SCM, SE Asia Dr. Rakesh Sinha n Tackling Variability and Forecast Performance through S&OP COO and Supply Chain Head, Godrej Consumer Dr. Rakesh Singh - Chairman ISCM Products Ltd Sales and Operations Planning - the core of a Success Story Dr. Mahendra Singh n Ashish Gujarati - GM Planning, HUL CEO and Rector, Malaysia Institute of Supply Chain Capacity Planning and Forecasting Innovation and Director Massachusetts Institute of Prem Verma - CEO, TML Distribution Company Ltd. Technology, Cambridge, USA. Dynamic Buffer Management Dr. Rakesh Singh n Hukeli Shohe - Tata Motors Limited Chairman ISCM and Distinguished Visiting Professor of Supply Demand Management at Videojet Technologies India Ltd Chain and Strategy, Great Lakes Institute of Management, Shailesh Bhadange, VTIL Chennai Demand Planning - the way Forward Round table SK Krishnan, Rahul Altekar, Dharmesh Joshi.

Readership Profile: & Dr. Rakesh Singh The readership profile of DPR will be Demand Challenges of global fast fashion supply chains Planning, Forecasting, S&OP Practitioners, Supply Dr. John Gattorna - (UTS University of Technology, Chain Heads, Sales and Marketing Heads, CEOs, Sydney) & Xavier Farrés (Miebach Consulting).

COOs, Academicians and Senior Government Officials.

Sparrow Books

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