Scmpro April 2015 Edition

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

10th April 2015 | Volume 1- No.1 | Rs.200

GURU Speak

India Salary survey 2015

LSP Focus

34

38

42

Building Dynamic Institutions for the New Networked World

State of Supply Chains in India

editorial

Come Feel the Change Hilary Clinton has announced her intention to run for the US presidency. This is a second time she is running for the office. Last time it was a choice between a African American vs. a woman as the president of US of A. Surprisingly, there has never been a woman president of the USA! In that aspect we are better off – we have had women as President and Prime Minister. This shows the real bias in the American mindset. Will this become a litmus test for gender equality? The jury is out.

Back home, the RBI cut the REPO rate and forced banks to follow suit. Moody’s is in love with Modi – the ratings agency has upgraded our rating from “stable” to “positive”- something that will bring in increased FII inflows! To add to it - the IIP numbers of February look good – the February IIP growth was at 5 percent – a three month high. Primarily on the back of a 5.5 percent growth in manufacturing output. Together, these developments point to a positive start.

However, the threats to our economy remain. A series of unseasonal rains has devastated crops across a wide swathe of the country. A truant El-Nino could add to our problems. The underlying threat to inflation still persists. We could see the return of food inflation.

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

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

In this issue, the spotlight is on sourcing. We bring you a cross section of opinions on sourcing – from e-sourcing to reverse auctions and from responsive sourcing to supplier collaboration. Apart from this we carry the annual India Supply Chain Salary Survey by Logistics Executive. The good news is supply chain salaries are looking up. Hope it helps attract more people to take up supply chain as a career.

Happy Reading

GIRISH V S

Editor girish.vs@scmp.in

Contents

April 2015 | volume 1 | issue 1

SCM World

6 SCM News

Sales As Supply Chain Strategy Dr. Rakesh Singh

Commentry on SCM Developments Across The World.

28 Feature

08

Supply Chain : A Differentiating Factor

47 SCMPro Class

Measurement

of Bullwhip Effect

in Supply Chain

SME Corner

Business Model Innovation in SME’s

49 SCM India Update

Current updates on Indian Supply Chain News

30 A Survey by Logistics Executive

Darryl Judd

4

| April 2015

India Salary Survey

2015 - The Year of Expectations

38

Lead Story

Sourcing Conquering Complexity, Driving Value

12

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 60020157/59 Administration Sanjay Gupta sanjay.gupta@scmp.in Subscription Manager Supriya Masurekar supriya@scmp.in Media Group D-204, Riddhi Siddhi Complex, Off. S.V.Road, Prem Nagar Road, Goregaon (W), Mumbai 400062. INDIA.

Guru Speak

Building Dynamic Institutions for the New Networked World

34

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. And Published at D-204, Riddhi Siddhi Complex, Off. S.V.Road, Prem Nagar Road, Goregaon (West), Mumbai 400062. INDIA.

Dr John Gattorna,

LSP Focus

State of Supply Chains in India

Alagu Balaraman

42

No part of this Publication may be reproduced or transmitted in any form or by any means including photocopying or scanning without the prior permission of the publisher. Such written permission of the must also be obtained from the publisher before any part of the publication is stored in a retrieval system of any nature. No liabilities can be accepted for inaccuracies of any description, although the publishers would be pleased to receive amendments for possible inclusion in the future editions.

Opinions reflected in the publication are those of writers. The publisher assumes no responsibilities for return of unsolicited material or material lost or damaged in transit. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.

Annual Subscription Rate: INDIA: Rs. 2000/Editorial Partner:

| aPRIL 2015

5

SCM News Investment in infrastructure is a basic requirement to put a country on the growth path. Skeptics of PM Narendra Modi’s pet theme of investment in infrastructure should take note of the challenges faced by Brazil. Brazil is ranked 120th in the World Economic Forum’s The Global Competitiveness Report 2014–2015 for infrastructure. Compare that with India (87th) Russia (74th) and China (50th). Brazil, a member of the famed BRICS nations has been a laggard in investments in infrastructure.

Brazil has been investing far below the 3 percent required for replacing the depreciation of fixed capital. (For the 12th five year plan India plans an investment of around 10 percent of GDP) One of the reasons for the slow progress in investment in infrastructure is reported to be red tape. For example, around 20 percent of the transportation related projects for the world Cup did not see the light of the day – in part to a lack of technical capability and in part to increasing audits. The Brazilian government, in conjunction with the railways launched a USD 42 Billion package for road transport. But fixed a 5.5 percent return on investment. Result – no bidders. And therein lies the problem. For logistics to improve, we need to couple the forces of private sector innovation with the scale of public sector. And remove the tangled red tape.

Hope we chart a better course!

A recent survey by PwC, of transport companies CEO’s in Europe has highlighted an interesting worry – fuel costs. In spite of oil prices falling by around 50 percent, fuel cost is a major worry for these CEO’s! Not without reason. Volatile fuel prices – moving from USD 140 to USD 45 and back to USD 70 over the past year – has put them in confusion – how much into the future should they hedge fuel prices?

No one could predict the fall in prices. And no one will be able to predict when it will rise.

Brazil‘s Logistics Nightmare Fuel Still a Burning Worry!

Back to Integration Supply Chain Terrorism The luxury watch maker La Montre Hermès has A new form of terrorism has raised its head. An joined some of its peers in backward integration anonymous letter sent to Fonterra (the world’s biggest by bringing its supply chain in house. This move was milk producer accounting for a quarter of New Zealand’s driven by the desire to protect its access to technology goods exports) and Federated farmers (an industry and raw materials. Over the past few years, the firm has group) along with samples of milk powder that was laced been quietly buying up its suppliers. This is a extreme way of with sodium monofluoroacetate, a poison known as securing relationships. The firm hopes to garner commercial 1080. Dairy products are very susceptible to threats advantage by gaining control over schedules. Third party of contamination – remember the melamine scare in suppliers have a set of customers and priorities that may Chinese milk powder- and can cause loss of market share. vary from those of the firm. This apparently creates a sense In response, the New Zealand government locked down of fuzziness to their deliveries. Hermes has a new product the entire supply chain and increased testing. This form development time of two to three years now. And believes of eco-terrorism is a dangerous development, and has the capacity to inflict huge economic costs. In New Zealand, that a development time of nine or 10 months is too long! the currency fell by more than half a cent and trading in shares of dairy companies were halted. As an industry, we need to come together to ensure that we can deal with such threats.

6

| April 2015

MASTER CLASS On Geopolitics, Macroeconomy and Business

The Master Class on Macro Economics, Geo-Politics and Business explores conceptual and theoretical tools to explain contemporary developments in world politics and how it is shaping businesses across the world. The masterclass provides an overview of this changing nature of contemporary geopolitics and how both geopolitics and macroeconomy will shape the future of businessess in India.

Who Should Attend Since the workshop is aimed at developing an insight into the Macro Economic factors that affect a firm, it is best suited for CEOs, COOs, Business Unit Heads, Vice Presidents, Strategic Planning Managers, Consultants and Business Forecasters and those involved in developing strategy and global expansion.

Why Should you Attend?  Develop a critical understanding of Macro Economics, geopolitics and strategy.  Recognizing and interpreting key economic trends like GDP, Inflation, Fiscal deficit, Interest Rates, Balance of Payments, Tariff and Quotas.  Understanding Macro Economic Policies like Fiscal Policy and Monetary Policy Interpreting Global trade and Geopolitics Dynamics for strategy making.  Be able to conduct country analysis  Be able to formulate your strategy factoring in Geopolitical and Macro Economic trends

@

Contact Us: info@iscmindia.net

Date: 1 Venue 5th May 20 : Hote 1 l Orch 5 id

Facilitato

r

Dr Rakesh Singh is distinguished professor of Economics and Supply Chain Strategy at Great Lakes Institute of Management, Chennai. Concurrently, he is the chairman of Institute of Supply Chain Management and managing editor of SCMPro. He is a gold medalist in MA Economics from University of Mumbai and PhD in Demand Planning and Forecasting. He Teaches at Athens University of Economics and Business and IIM Kolkatta. His Research is in the area of Geopolitics, Macro Economics and Rural Markets. He is widely published internationally and nationally. He Has conducted numerous training programs on Macro Economics and Business Strategy for Nivea, Murugappa group, L&T, Syngenta, Rallis, Fiat, Mahindra Automotive, Dabur and Dachser India Pvt. Ltd. etc.

The fees can be paid by cheque to “Institute of Supply Chain & Management Pvt. Ltd.” at Mumbai.

The Fees for Master Class is Rs. 22,500/+ Applicable Tax.

Initiative

D-204, Ridhi sidhi complex, Prem nagar, Goregaon (W), Mum.-400 062. Ph.: 022 60020157/59. www.iscmindia.net

| April 2015

7

SCM World

Sales as

Supply Chain Strategy

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

8

| April 2015

For decades, sales and operations were confined to silos – with hardly any interaction between the two functions. And sales always had the upper hand. It is time firms develop a consolidated view. The S&OP planning leads to a sales plan, production plan, inventory plan, customer lead time plan, new product development plan, strategic initiative plan and financial plan. Rakesh Singh speaks about the necessity to integrate sales and operations planning into a single unit, to drive efficiency and customer delight.

The supply chain fraternity has always been complaining of dominance of sales and marketing in the strategy of an organization.

Any move to align sales is the most resisted move. In companies where sales and marketing have no defined boundaries this combination could be fatal.

The questions about bad customer service, excessive inventories and erratic plant schedule are blamed on each other leading to a situation where supply chain is operated as functional strategy. This is often because each functional area is more responsible towards its functional achievement than the

larger business goal and objectives.

This often creates forces which erodes competitive advantage of the firms. With the advent of supply chain management, Supply chain heads are realizing the importance of a single number based supply chain. They are beginning to understand the importance of right product at the right time and at right price.

They are finding it hard to explain to their colleagues whether the problem is demand problem or a supply problem and hence are unable to bring the discipline that supply chain is supposed to bring. It looks like supply chain as strategy can only work if sales too is aligned to the larger strategy of the organization.

Why sales and strategy or sales as strategy? Any action or sales processes has an unintended consequence for your strategy as professor Cespedes says “If you don’t understand the cause and effect relationship you are going to pull all the wrong levers, while trying to fix it”. The tendency to focus exclusively on tactics and current operation, while failing to think strategically is not unique to sales. This is critically due to the nature of the job and life in this area of business. Life in any sales organization is filled with deadlines, calls, periodic crisis, pressure to perform, and Targets.

All these makes sales tactical and highly functional where each one is trying to maximize his incentive often in conflict with the organizational goal. This is a classic game theory where the overall outcome reduces.

This is complemented by disconnect between strategic decision making and sales decision making. Most companies treat strategic planning process as an

annual exercise as a precursor to annual budgets and capital approval processes. To put it in Professor Cespedes words “nine weeks plus nine weeks plus another round of meeting equals somewhere around 4 to 5 month of Planning. While this is going on market will do what it is doing.”

No wonder then that sales is out of such a draconian planning processes.

They are finding it hard to explain to their colleagues whether the problem is demand problem or a supply problem and hence are unable to bring the discipline that supply chain is supposed to bring.

Sales as a part of supply chain strategy? This question often comes in our mind. Given the job profile of supply chain within a strategic organization, it naturally is the most integrative function, its main goal is to bring end to end visibility. Sales needs to get aligned with supply chain and strategy. Most supply chain heads I have been talking to claim that organizations today are still sales driven. The organizational design is such that supply chain gets side stepped. Convincing the sales department of an aligned planning is often frustrating. They often say that nothing can happen. This politically motivated organizational structure cause huge cost to the company in terms of sales lost and inventory holding cost. But the firms often maintain status quo.

What can actually bring alignment between sales, operations and

marketing? A forecast which all of them believe can be a starting point. Most successful companies base their supply and demand planning on this single forecast.

Convincing sales and marketing person of the need of the forecast can be often frustrating affair, with many hurdles to overcome.

Benefits of forecasting are too great to be ignored by even the most trenchant opponent to change.

What can facilitate this? Strategic planning lingering over a longer duration is not a solution to these problems. The demand and supply planning alignment requires continuous and periodic review along the year. Most companies have been able to use Sales and operations planning as an effective tool for this alignment and make sales a part of both supply chain and organizational strategy. What should be the basic structure of a sales and operations planning?

How often do these functional area meet for a review and realignment of forecast with organizational goals? How should one arrive at a single number planning as against multiple number planning?

It is well known fact that convincing a sales person is often frustrating because the alignment exercise does not have the top management support. In order to

The single most important agenda of sales and operation meeting should be a single number forecast which optimally balances the demand and supply | April 2015

9

SCM World get buy in to a demand planning process is to first buy in the organizations top management or the leadership team. Get The CEO, Directors of all the function, General Managers in attendance and let them first buy the change in organizational processes. This will automatically pave way for a well aligned Sales and operations planning processes.

Despite this you may not be able to improve supply chain efficiency and profitability. What needs to be done to see that a well aligned sales and operations strategy bring

A lot many efforts in sales and planning have failed primarily because of lack of understanding as to how to go about sales and planning process. As business grow, so does the problem.

Most organizations find that the variability issues starts threatening the supply chain profitability.

In the absence of one number forecast the bull whip effect takes over profitability. Thus there is a need of one number forecast.

Most companies have forecast by functional areas like, marketing, sales and supply chain added to

Sample Agenda for Executive Review Meeting Consensus: Prior Period Results and Future Forecast

Once the problems are identified, their impact on organization is quantified, it is important to get the top management buy in for S&OP process. The process needs to be built around the culture of respective organization. Roles and responsibilities should be clearly defined. Critical feeds into the new process should be carefully studied and, where necessary, changes made. The final task is communicating and getting buy-in for this new process from stakeholders, as well as from Management. The sample agenda for review meeting is as given in the Box. This S&OP process provide the organization with a means of gaining greater control over the business while improving

Key Assumptions Upsides/Downsides Metrics: Prior Month Performance - MAPE and ME Product Availability/inventory Supply: Capacity and Inventory - By Asset Base/Brand Groupings - Supply: Risk, Opportunities, Decisions Needed Expirations/Aging Inventory Feedback: What went well? What can we improve?

supply chain profitability is to ask a simple question as to what is causing this? Ask yourself is this is primarily a demand problem or a supply problem? This becomes a sound basis for a sales and operations planning processes.

This sales and operations planning becomes the communication platform between both the supply and demand wings of the organization. There is a need to build common minimum plan to be agreed by all the functional areas.

This sounds simple but how do you build this.

10

| April 2015

this is the budgets from finance and strategy. How does one negotiate a single forecast? This is the biggest challenge. The firm needs a well-designed Sales and operations processes designed and implemented. This requires a cross functional team.

The single most important agenda of sales and operation meeting should be a single number forecast which optimally balances the demand and supply. The first task of the S&OP should be to conduct a current state process map.

If you don’t understand the cause and effect relationship you are going to pull all the wrong levers, while trying to fix it forecast accuracy. Some of the key benefits we begin to see will be: (1) performance metrics to drive improvement, (2) better visibility of risks and upsides by brand, (3) additional capacity needed to deliver business growth and meet customer service expectations, (4) improvement in trust among team members, and (5) clear accountabilities.

Hence when we start seeing sales as supply chain strategy it will be

win-win situation for all

Join India’s Premier Community of Supply Chain Professionals ISCM and SCM Pro announce the launch of India’s first exclusive community for supply chain management and logistics professionals.

As a member of ISCM community, you get privileged access to: A Round Tables: Thought-provoking discussions and information on topics most relevant to supply chain managers.

A

A free subscription of SCMPro – a thought leadership magazine for the SCM Professional

A

50% discount on Special Publications

A

20% discount for ISCM’s events

A

Access to white papers and other research material from our faculty team and other affiliated professionals.

Who should Join: Any professional with interest in Supply Chain and Logistics is welcome to join the community as a Regular Member.

Supply Chain Professionals, Students, Academicians, Consultants, Government Officials involved with SCM and logistics can be part of this initiative. We value the efforts, knowledge and commitment of all members and encourage all to participate in these activities.

Individual Membership: A regular membership is available for a Yearly fee of Rs. 5000/- only.

Corporate Membership: Corporate members are given multiple access to knowledge forum and publications. Please contact us with your request for more details.

Come and be a part of India’s first SCM community.

For more details info@iscmindia.net

Initiative

Lead Story

Sourcing

Conquering Complexity, Driving Value The current era is being defined in multiple ways – some call it VUCA world. Some name it digital world. Yet others define it as the SMAC era – after the convergence of Social Media, Mobile, Analytics and Cloud Computing. However you look at it, these developments – either in isolation or in congruence, has the potential to disrupt the existing business models. Firms need to be able to adjust their sourcing strategies to exploit the opportunities and address the challenges. Sourcing has to move beyond the traditional make vs. buy debates to embrace reverse auctions, e-sourcing, responsive sourcing and collaboration in sourcing. In this issue, SCMPro brings you expert views on these aspects of sourcing.

S

upply chain management has multiple facets to it. The forward looking, firm to customer facet, which gets maximum mindshare of management, is the fiefdom of marketing departments. An equally important facet of supply chain is the backward looking, raw material to manufacturer movement of goods the sourcing or procurement function.

And the bridge between the two is the demand planning function. For a very long time sourcing was focused on beating down price. The aim was cost reduction. In the process, in most firms, transparency, sharing of

information or trust in relationships were conspicuous by their absence.

Supply Chain Management is slowly gaining management attention even in India. As firms try to grapple with volatile customer demand, they have realized that they need to have an

As sourcing becomes real time, predictive and technology based, the talent needed to run these programs too will require skills upgrade

equally responsive and agile sourcing strategy. Failing which, inventory pileups and discount sales will be the norm. Which translates to lost profits.

In this issue of SCMPro, we look at the sourcing function. Not in the traditional way, but through a series of articles which explore the emerging paradigms.

There are competing business objectives in sourcing – reducing ad-hoc spends, delivering cost reductions, managing supply risk, and at the same time tapping into the innovations from the supply

"

Sourcing has become a very strategic and critical tool for any organization to have competitive advantage. Relationship with Suppliers and vendors of any kind / service has now moved to the level of partnership and is an important link for the success of any business. While cost will always remain a critical factor but longevity of contracts and relationship is also becoming equally important and organizations have started to realize the advantages of dealing with organized sectors than to look for some short term immediate gains. Due to the established processes of organized and large players even them they dealing with varied businesses has helped organizations in getting consistency in quality and reliability of products and services. It has also helped organizations in savings on time and effort being spent on managing them. These changes have also impacted the way supply chain functions now and unlike past organizations are preferring to deal with the 3 PL and now even 4 PL vendors who add more value under roof which has is forcing the stand alone service provider to climb up the value chain.

12

| April 2015

"

Prem Verma, CEO, TML Distribution Company Ltd

"

International Collaboration Collaborate with international suppliers can be interpreted in two way – starting the business with International supplier and addressing the concerns. Second – collaborate with international suppliers for new product development, innovations First interpretation As more and more Indian corporates are acquiring businesses overseas and transforming into multinational entities, it is imperative that their sourcing is global. Godrej Consumer Products has transformed in to Global corporation focused in Asia, Africa and LatAm, resulting in supplier spread across globe. There is always concerns on global supplier portfolio and can be addressed by taking following measures.

• Credibility Check – Check supplier’s reputation, validate financial strengths • Audit Plants and facilities, perform PEST Analysis.

• Samples approval – Have stringent approval process in place for incoming quality check and initial sample approvals.

• Use international supplying agencies to validate the consignment before dispatch • Use own organization’s credentials and have a longer credit terms. it means, consume the material and then pay • Have sufficient checks and balance in contract in order to protect customer’s interest • Have a risk mitigation strategy in place.

• Understand the cultural sensitivities and have alignments. base. While meeting these business objectives, sourcing should ensure un-interrupted flow of quality raw materials and components to the production facility. Simple when stated, there are a number of challenges sourcing faces: The first challenge the sourcing function faces is anonymity.

Sourcing does deliver savings to an organization. But, often, this savings is cannot be traced back to sourcing – it cannot be seen in the PandL statement! Sourcing should demonstrate that it can add to the top line and bottom line, much as any other function. Sourcing needs to talk the language of Earnings per Share, working capital and gross profits.

Unless the savings from sourcing can be measured and audited, it will continue to remain in the shadows.

A second challenge to sourcing is ensuring that the plant – which is highly flexible (the excuse of changing customer preferences) – has the necessary inputs to sustain production. This in turn means using flexible sourcing norms, strong information technology tools and an ability to track in real time.

A third challenge is managing a kaleidoscope of supplier risks.

Sourcing has to continually monitor the supplier base and evaluate the potential disruptions in the supply.

The fire in the chip manufacturing facility of Royal Phillips Electronics in Albuquerque. Nokia, one of the manufactures buying from Royal Phillips survived. Ericsson suffered a huge set back and lost its dominance in the market. Yet another risk that sourcing team has to mitigate is the volatile commodity prices. Sourcing teams now have to collaborate with treasury teams to hedge commodity price risk. Sourcing has to monitor quality throughout the value chain, right down to the last supplier.

Yet another challenge that is receiving management and activist attention is sustainability. Sourcing from entities that use child labor, have exploitative working conditions (sweat shops) and do not use sustainable manufacturing practices can cause a severe dent in the firm’s reputation.

Sustainability has moved from being a risk to competitive advantage. For example, in Unilever, 70 percent of its sustainability initiatives are based on its supply chain. And contrary to

Manoj Khothari, Head – International Strategic Sourcing, Godrej Consumer Products Ltd.

"

expectations, these sustainability initiatives have saved it money.

A fourth challenge is spend analysis.

Without the means to monitor spends in real time, by the time someone notices the excess spend, it may be too late! There are two types of challenges here. One is to ensure that the firm is not wasting money

The convergence of SMAC – Social media, Mobility, Analytics and Cloud computing is changing the sourcing landscape on unnecessarily high component specification. Is it really necessary to use a weighing scale calibrated to micro grams for weighing auto parts?

The other is to manage process and adherence to contract. An auxiliary issue is managing spend and scope creep.

A fifth challenge is the use of technology. Manufacturing has been a laggard in IT spend. Within | April 2015

13

Lead Story manufacturing, supply chains are the least tech friendly. There are multiple pieces of technology within the sourcing function. Spend analytics, e-Sourcing, e-Workflow, spot buying / tail spend management, and budget management are some of the technology components in sourcing.

The convergence of SMAC – Social media, Mobility, Analytics and Cloud computing is changing the sourcing landscape. SMAC will help sourcing professionals stay in touch with the developments in markets and proactively mold spends based on changing market demands. Sourcing is now expected to use predictive analytics in real time, using structured and unstructured data.

A sixth challenge is supplier collaboration. It is widely accepted that to drive competitive advantage, it is not a question of “if” a company can collaborate with its suppliers, but “how.” Most organizations are struggling with the basic foundation to nurture and leverage their relationships with suppliers.

Traditional sourcing practices seek to reduce costs while also trying to improve quality and service, and sometimes also to leverage supplier expertise to drive innovation.

Companies need to systematically harness the power of collaboration, with a holistic and balanced approach

to strategically manage all interactions with suppliers across the entire lifecycle of engagement.

A seventh challenge is attracting talent. As sourcing becomes real time, predictive and technology based, the talent needed to run these programs too will require skills upgrade. To demonstrate that sourcing can make a difference to the top and bottom line of an organization, it requires a different breed of leaders. A team that is tuned to fire fight supply bottlenecks cannot be expected to overnight change gears to a collaborative, analysis based, real time dynamic sourcing pattern. Like in

There are competing business objectives in sourcing – reducing ad-hoc spends, delivering cost reductions, managing supply risk, and at the same time tapping into the innovations from the supply base

any other management function, the success of a sourcing team depends on the people who run it. Attracting top talent is a fight.

Sourcing has become a very strategic and critical tool for any organization to have competitive advantage.

Relationship with Suppliers and vendors of any kind / service has now moved to the level of partnership and is an important link for the success of any business. While cost will always remain a critical factor but longevity of contracts and relationship is also becoming equally important and organizations have started to realize the advantages of dealing with organized sectors than to look for some short term immediate gains.

Due to the established processes of organized and large players even them they dealing with varied businesses has helped organizations in getting consistency in quality and reliability of products and services.

It has also helped organizations in savings on time and effort being spent on managing them. These changes have also impacted the way supply chain functions now and unlike past organizations are preferring to deal with the 3 PL and now even 4 PL vendors who add more value under roof which has is forcing the stand alone service provider to climb up the value chain.

As retail business changes throughout the global economy, the process of sourcing and production needs to be adaptable as well. Initial buys from retailers are not the high quantities of years ago, but now shifted towards smaller test orders. In many cases orders are below a factory’s requested minimum, which creates issues for fabric, trim or component orders. It is not uncommon for factories to partner for this very reason. This collaboration can be arranged by the agent or buyer as business between factories are not typically shared. If done correctly, the outcome is a win-win situation for all parties-- buyer, factory, and supplier.

It can be more cost effective for manufacturers Potential issues are as follows: to partner so they do not end up with excess - Confidentiality inventory that may in time be discarded due to - Location of Factories age/element damage or from being unused. This - Time line of Supplier Delivery - Inventory Availability from Supplier collaboration of competitors can be done at any product level and is indeed common with luxury - Factory Order Placement Delays where consistency and quality are of the utmost importance.

14

| April 2015

Janice Okuda, Founder, Consultant, Senior Sourcing and Production Manager, Okuda Consulting, USA

"

"

Lead Story

Is

Procurement Being Too

Aggressive in

Negotiations?

A

Robert Handfield, Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University, and director of the Supply Chain Resource Cooperative.

16

| April 2015

recent post by my colleague Kate Vitasek (author of the “Vest Outsourcing” model) in Forbes magazine argues that procurement is taking too aggressive a stance in negotiations with major logistics providers. She uses the example of a company who decided to use a reverse auction to award business for a logistics contract worth hundreds of millions of dollars, based on “lowest price”. That is effectively what reverse auctions do – ignore quality, service total cost of ownership, and focus simply on lowest price. I have argued in many other of my posts that reverse auctions do a disservice to all parties, but in the end, hurts the stakeholders impacted by this more than anyone.

The executive making this comment also noted that “Many logistics service providers are at a breaking point – especially when you factor in providers that have taken a huge hit with the West Coast labor issues that slowed global commerce to a screeching halt up and down the West Coast.”

to playing a role in value-adding activity and influencing business strategy. Value will become the “Holy Grail for procurement” in the modern era of global business.

Kate also refers to my new book (written with my colleague Gerard Chick), The Procurement Value Proposition: The Rise of Supply Management, which effectively calls for change in procurement! The books documents how procurement organizations need to move away from being only about cost reduction

strategic procurement

Our book talks about the key trends that will force change: “Organizations continue to grow their supply chain global footprint. As companies expand globally, so does supply chain complexity. Increased globalization brings increased risk of supply disruption.” What do they believe should be done about this? We argue that organizations should “embrace complexity” and manage it through more rapid responses, better market intelligence and greater adaptive capabilities.

Kate notes that it’s myopic to simply shift your risk problem downstream and hope it won’t affect you. The smarter move is to create highly collaborative relationships with key suppliers where buyers and suppliers work together to mitigate (or even eliminate) risks. This is a major shift for many procurement executives, but is indeed a critical part of the move to

The smarter move is to create highly collaborative relationships with key suppliers where buyers and suppliers work together to mitigate (or even eliminate) risks

Staying Competitive Moving from Efficient to Responsive Sourcing Management focus is shifting towards squeezing out maximum advantage out of their supply chains. An important pillar of the supply chain domain is the procurement or sourcing function. To help the organization move from a cost driven paradigm to a value driven framework, sourcing professionals need to focus on the customer and not internal metrics. Ramki Ramakrishnan, Global Category Director of SKF Ltd, writes about the movement from efficient to responsive sourcing.

C

onnected Economies provide opportunities for free movement of goods –thereby opening up new sourcing options but there are also risks which open up multi fold with such multiple channels to source. Right sourcing has been the key word used by procurement and supply chain professional for last teo decades. Right Sourcing means the following: 1) Right Quality - Meeting the specifications and ensuring no scrap in production due to hidden defects.

2) Right Cost - Based on a Total cost the supplier should be able to offer competitive costs 3) Right Delivery - Just In time and flexible delivery to changing demands is a requirement to be met 4) Innovation - More and more companies expect suppliers to contribute by innovation and continous improvement to improve product performance and costs.

5) Management - MNC’s expect suppliers complying to Code of conduct and show commitment to sustainability (Green, CSR initiatives).

What has changed in the last five years?

Ramki Ramakrishnan, Global Category Director, Group Purchasing at SKF

Volatile commodity markets, highly fluctuating currencies and geopolitical risks have increased in the last five years. The business cycles are becoming shorter and ability

to forecast demands becoming extremely tough. Financial stability of customers, suppliers are also creating disturbances to supply. The logic of Make vs Buy decisions and Total Cost of Ownership are being looked from a different frame.

From the customer side too the pressures are increasing with new, nimble players who are able to listen to customer needs and create just right products. Internet and ecommerce provides both opportunities and challenges for the Sourcing professional as the bar keeps rising.

What should a Sourcing Professional do to adapt?

The original Mantra for sourcing was to make it efficient. While there can be different ways to define Efficiency, the most common things in efficient sourcing were: 1) Increase Spend under control 2) Structure Strategic Sourcing (Category strategy and RFQ Management) 3) Contract Management and SRM 4) KPI management Purchasing professional strive to get the leverage of spend and bring in healthy competition. With water tight contracts and long term relationships drive up the performance of suppliers in Quality,cost and deliveries. While these are still relevant, they are not | April 2015

17

Lead Story enough. There are examples when Global companies had to face supply disruptions due to reasons other than QCD. The other element which is becoming more magnified is the consumer awareness of sustainability practices companies adopt forcing companies to chose near sourcing to Long distant sourcing. With the decision prism getting larger the sourcing professional needs to become move towards more responsive Sourcing. This will ensure the company stays competitive and supply chain agility is assured.

Responsive SourcingWhat are the four add on elements?

1) Understand Demand patterns and segment the chain: Most procurement professionals tend to look at value and volumes rather than demand patterns. It is important that they start to look at the different supply chains within their organization and understand the demand behaviors before they decide the sourcing strategy. For example a made to order item with short notice demand even if it is a reasonable volume does not fit the portfolio of Long Distant sourcing. Companies which see big benefits in cost per piece basis try to do long distant sourcing-either ask the suppliers to hold stocks for long periods or pressure them to supply at short notice. Both ends up in issues of managing the supply costs as longer storage results in product deteriotation in some cases and push for early supply ends in quality issues or airfreight costs not budgeted. So before finalising suppliers have a cross functional team debate the strategy for the different demand patterns of products and then make an informed decision.

Similarly shorter life cycle products needs to be near sourced to avoid risks of obsolescence.

Several supplier relationships are 18

| April 2015

spoiled when companies don’t make the decision to support such obsolescence costs and end up increasing their longer term sourcing costs as suppliers understand that this is a hidden costs they have. More and more companies are now talking about Regional balance as they see long supply chains add costs which they had not factored in earlier.

2) Risk Management thinking: Most companies do an implicit Risk Management approach. A template being filled in almost mechanically with not enough alternatives thought through. In other cases based on one bad experience certain viable options get ruled out. Both the above does not help as they end up in sub optimal situations (in risk/ costs). A more systematic Risk Management approach based on facts (like Total Costs including loss of flexibility, obsolescence, leadtimes etc) and crystal ball of situations (likely, optimistic and pessimistic) with a strategic sourcing board making the decisions based on value of spend and strategic importance. Job rotation of people also improves Risk management as too long in the same role creates a passive approach to risk management.

3) Sustainable Sourcing Audits: While quality and process audits are done and product approvals done with full rigor, Code of Conduct and Sustainability practices audit of suppliers are often ignored.

High risk countries and suppliers should be audited and educated to practice Code of Conduct.

There are companies which have drawn a clear red line for certain practices like Child labor, pollution and working conditions. Though suppliers may initially see this as increasing their costs, they start to see the benefits due to improved motivation and assured long term businesses from their customers.

SKF has actively run CoC audits

and suppliers who have invested to improve the practices have seen this happen.

4) Co-Innovation –an extended enterprise thinking: Most companies maintain an arms length relation with their suppliers by expecting them to deliver to their specifications. Some manufacturing difficulties faced by suppliers are often ignored.

Suppliers maybe common to competition and have knowledge of how to simplify design and reduce costs. Responsive Sourcing means we start listening to our suppliers in a more active way-not just have transactional relationships. Innovation forums are a good way to get the supplier innovations on board. We have had enthusiastic participation by suppliers as they feel respected and are wanting to be part of the innovation process. Funelling the supplier innovation ideas is a great way to build partnerships, increase ownerships and become more responsive to markets. Low cost innovations are key to success in emerging markets and the source usually is the suppliers who understand the process better on the ground. Companies which have outsourced a lot need to rely on these partners to get their competitiveness reinvented.

Responsiveness as can be seen is lot to do with the way we see sourcing process as if we look at it from the back end then the thinking will be more on efficiency. Demand driven is the key concept. We hear more and more companies saying they would like their supply chain from being cost to value driven. The important element of this value driven thinking is that customer defines the value not internally oriented KPI’s. The journey for Sourcing professionals to look at customer value instead of meeting the factory needs is a quite a change.

But those who make this will be able to lead the change from Efficient to Responsive Sourcing.

The international meeting place for warehousing, logistics & supply chain

5

www.IndiaWarehousingShow.com

YOUR KEY REASONS TO VISIT IWS 2015

SOURCE NEW PRODUCTS AND DRIVE SALES

MEET NEW CONTACTS AND BUILD NETWORK

LEARN THE EMERGING OR

CHANGING TRENDS Visitor Helpline No.:+91 88260 02059 VIP Partner

Concurrent Event

Supported By

Organised By

Media Partner

To Exhibit, Contact : Akshita Kapoor +91-9811715124 akshita.kapoor@reedmanch.com

PRE-REGISTER NOW to visit India Warehousing Show 2015

Lead Story

Exploring E-Sourcing

The Indian Government decision to take an auction route for telecom spectrum and coal mines reinforces the role of technology in strategic sourcing space. e-Sourcing is emerging as one of the quickest and least painful ways for government to increase revenues and for companies to boost their bottom lines in an increasing competitive e-commerce economy. While its scope and success will vary by industry and type of buy, e-Sourcing whether through an e-catalogue, online auction, electronic RFQ process or other methodis almost a good idea that should be implemented sooner rather than later. This paper looks at e-Sourcing history, its benefits and list best practices for organizations to adopt e-Sourcing Program.

History of e-Sourcing Reverse auction was among the most profound e-Sourcing technologies, first introduced by Free Markets in 1998. As sourcing managers understood its benefits they began to test the use of reverse auction on types of purchases, expanding their use well beyond traditional commodity items. By Early 2000’s, several tools and technologies to automate the process were gaining popularity and handful of companies began using sourcing technologies. These companies were industry leaders as they successfully automated the sourcing process.

Although, there is no data available but anecdotal evidence suggests that incorporating e-Sourcing technologies into an already well managed sourcing program can increase savings incrementally by 5 to 8 percent on an average. In last decade the need and maturity of the organization has helped evolve e-Sourcing technology beyond reverse auctions. Consider the vastly different needs between the organization engaged in running a few reverse auctions and driving eRFX for strategic categories, compared with a highly sophisticated procurement technology merging the worlds of sourcing and supply chain network design in complex tenders.

Sagar Varolia, Business Process Outsourcing, Accenture

20

| April 2015

Benefits of e-Sourcing e-Sourcing does more than to establish an electronic venue for

buyers and sellers to meet; it also streamlines work flows, enhances flexibility and drives transparency in the buyer –seller relationship. It is ample evidence to suggest that these tools have keen advantages, from accelerating sourcing cycle times and expanding the sourcing process to more suppliers, to increasing incremental savings, especially when compared to standard paper based approaches. Many benefits accrue to the bottom line through significant spend cost reductions. Indeed, much of the rush to migrate sourcing programs online is the widely held belief that there is great deal of easy money left on the table- i.e. e sourcing can reduce cost by consolidating buying across an enterprise and help large companies capitalize on volume discounts through virtual scale.

Additionally by eliminating routinized task like transaction processing, e- sourcing can free up purchasing personnel to focus on more strategic issues. Major benefits for organization driving e-Sourcing initiatives are:

Process efficiencies and Time Savings The sourcing solution automates and eliminates many of the labor intensive and repetitive routine administrative tasks such as: supplier engagement; notices, document distribution, opening procedures, evaluation, follow-up, setting up meetings etc. Process automation

avoids the need for additional staff and frees up time for existing staff to focus on more value added activities such as: conducting cost comparisons & negotiating better contracts and develop category expertise.

Table 1: Performance comparison: Traditional sourcing Vs E-Sourcing

Improved and Transparent negotiations: Electronic Auctions to drive cost efficiencies e-Auctions are negotiations conducted via an online platform.

Suppliers get the possibility of improving their proposals based on market feedback (e.g. rank in negotiation) and are considered to be the most transparent way of conducting negotiations. E-Auctions include both price and non-price (service level, quality, etc.) parameters to ensure the result of the auction reflect the overall best total value for buyer.

Faster response evaluation e-Sourcing platform provides simple format for submitting data online and reduces the time spent analyzing response information by automatically aligning responses, automatically scoring closed questions and enabling worksheet based scenario evaluations for price and non-price criteria.

Reduction in overhead costs Elements of costs such printing, copying, paper, postage, carriage and stationery can be eliminated through use of the sourcing module. For example, storing contract information and event histories electronically will avoid the cost of valuable office space, fire safes and archive storage.

Knowledge management & collaboration Having one system shared across all buyers and evaluators within an organization ensures that decentralized procurement staff can operate within an organizations policies and procedures.

*RFx refers to request for information, proposal or information. Data source: A. T. Keamey Analysis

Best practices to drive e-Sourcing initiative There are a few basic steps that can get you on the right road to a successful e-Sourcing program.

Commitment to the e-Sourcing program It is imperative that you have executive level commitment to the e-Sourcing process and execute accordingly. Without this commitment savvy suppliers and reluctant buyers will sense vulnerability in the armor.

The unfortunate results can include less than optimal savings, event sabotage, or the collapse of the program.

Communication is the key Clear communication is a must throughout the entire e-Sourcing cycle. From defining specifications, to stating time frames and key steps, and outlining service level expectations, communication is critical. This ensures the integrity of the process is upheld and all parties involved have a clear understanding of what is expected throughout.

Adhere to highest ethical standards Leading procurement organizations focus on the design, deployment and maintenance of their programs,

never giving suppliers or stakeholders any reason to question the integrity of the process or how the tools are deployed. Although mistakes can happen, there can never be appearance of unethical practices.

One of the advantages of e-Sourcing tools is the audit trail they provide.

Design and deployment metrics Measurement is essential. Defining target for the program and tracking progress against those targets ensures that these targets are translated into individual annual performance programs for stake holders and sourcing team members. In best practices companies, the metric go beyond tracking savings to also include number and types of events completed, the number of suppliers and stake holders engaged and supplier compression achieved, among others.

Organization that are most successful at implementing e-Sourcing are able to: adopt a holistic approach, build on sound strategic sourcing capabilities, realize that arbitrage is not the name of the game, understand that this isn’t alchemy but change supported by market logic, use e-sourcing as a total business proposition and are comfortable with controlling the market versus letting the market control them. | April 2015

21

Lead Story

Reverse e-Auctions A Recipe for Success

This two part article discusses the process and key considerations of building a business case for Reverse e-Auctions as well as the critical success factors that buying organizations must be aware of before starting a Reverse e-Auction project. Reverse e-Auctions in an alternative tactical sourcing tool to support the negotiation process and require careful administration and execution. This article also explains popular misconceptions about the process and serves as a guide to successfully identify, prepare for, and execute successful e-auction events.

E

nterprises and organizations – whether small, medium or large – have used Reverse e-Auctions with varied degrees of success in the strategic sourcing cycle. While some buyers use it to drive substantial price reductions, others leverage it as a tool for price discovery and to gain knowledge of the supply market.

At the other end of the spectrum, supplier organizations have conflicted views on Reverse e-Auctions – some find them fair and transparent while others believe only buyers stand to gain in Reverse e-Auctions by squeezing supplier margins.

However, with the right approach, administration and execution, Reverse e-Auctions provide significant benefits to buyers and suppliers by delivering value and improving business outcomes.

Reverse e-Auction Overview

Sudeep Ghosh, Sr Consultant Business Platform, Infosys BPO

22

| April 2015

Businesses conduct Reverse e-Auctions as part of the strategic sourcing process mainly to drive down prices of products and services. Some companies leverage them as a tool for price discovery to ensure that their current prices are competitive in the market while others use Reverse e-Auctions to understand supply market dynamics and supplier behavior in a competitive environment. In all these cases, suppliers need to be clear about their expectations from the process at the beginning.

In its basic form, Reverse e-Auction is an online real-time dynamic negotiation process between a buying organization and a group of prequalified suppliers. The suppliers are competing against each other to win contracts to supply goods/ services with clearly defined specifications for design, quality, quantity, delivery, and related terms and conditions.

Suppliers compete by bidding against each other over the internet using specialized software. They submit successively lower priced bids during a scheduled time period, usually lasting about an hour. However, multiple and brief extensions are allowed when bidders are still active at the end of the initial time period.

It is important for organizations to understand that a Reverse e-Auction is a tool to facilitate online negotiation within the sourcing process while presenting a viable alternative to oneon-one negotiation with suppliers. As a proven technique for discovering the best commercial offer the supply market has to offer, this tool is most successful when coupled with rigorous research analysis, a robust sourcing strategy, clearly defined Requests for Proposal (RFP)/ tender documents, and a competitive supply market. However, it is not suitable for all types of spend categories and is not the only e-sourcing tool relevant to the sourcing process. More importantly, it is not a substitute for

Rural and Agricultural Supply Chain Summit 2015 5th June 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 r The Changing Rural Consumer r Rural Reach and Agri Supply Chains – Strengthening the Ties r Challenges of Reaching and Communicating r with Rural Consumers r r Making Agri & Rural retail successful r Role of Rural Credit / Insurance in rural Agri Supply Chain r 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 a nd Operations together r Out of the Box Strategies for rural and Agri Markets

Understand drivers and enabling framework f or reaching rural markets.

Understanding the role of corporate initiatives i n 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.

Initiative

For more detail, contact info@iscmindia.net or call 022 60020157 / 159 | April 2015

23

Lead Story RFP

RFP & Reverse Auction

Reverse Auction

Spend characteristics

Complex

Custom

Generic/ Commodity

Product/ service specifications

Created by buyer

Created by buyer

Industry standard

Driver

Predominantly Value

Value and price

Mostly price/ volume

Supply market competitiveness

Monopolistic

Competitive

Very competitive

Supply base

Single or few

Many

Large pool

Supplier relationship

Strategic

Limited

Transactional

Switching cost and risk

Very high

Medium

Low

Table 1: Guidelines for an e-sourcing strategy using an RFP, reverse e-auction or a combination of both

the strategic sourcing process and behaves as a complement to the negotiation process.

Select your e-Sourcing Strategy carefully There are several factors to be considered before choosing an e-sourcing strategy such as spend segmentation, supply market competiveness, specifications, supplier switching risk, and associated cost. The table below presents an analysis of key factors as guidelines to choosing a strategy in three situations – RFP, Reverse e-Auction and a combination of both.

| April 2015

While there are several approaches to conducting Reverse e-Auctions, they are all driven by the need for additional screening to choose the best supplier after considering nonprice factors. In cases where the suppliers are already known, Reverse e-Auctions can be directly conducted.

The recommended five approaches to conduct Reverse e-Auctions are shown below:

Where do Reverse Key Phases in a Reverse e-Auctions fit in the Strategic e-Auction Event Sourcing Process?

A Reverse e-Auction event consists Assuming that strategic sourcing is a seven-step process, enterprises engage in Reverse e-Auctions at the fifth step after conducting supplier analysis and supplier short-listing.

At this stage, enterprises want the shortlisted suppliers to state their prices.

Approaches to Reverse e-Auctions Companies need to carefully choose the stage at which they leverage Reverse e-Auctions in order to ensure a smooth process. Auctions can be conducted after the Request for Information (RFI) stage selects a final

Figure 1: Seven-step strategic sourcing process 24

list of vendors or, in cases where there are a large number of potential suppliers, after an elaborate Request for Quotation (RFQ)/ RFP process.

of six phases and can be a timeconsuming and complex process depending on the product/ services being procured, number of suppliers and geographies involved, currencies, number of line items, etc. The six phases of the process are shown below:

Figure 2: Recommended approaches to conducting a Reverse e-Auction

In a supply market driven by competition, commercially attractive spend value, and high availability of suppliers, Reverse e-Auctions help enterprises negotiate for the best prices. There are some key factors to be considered when planning such a prospect as shown below:

In a supply market driven by competition, commercially attractive spend value, and high availability of suppliers, Reverse e-Auctions help enterprises negotiate for the best prices.

Key Considerations Substantial spend value

Companies require considerable spend value for a given category to attract supplier participation. While the minimum requirement is USD 100,000, there are auctions where the spend value is as low as USD 30,000. In such situations, companies need to consolidate spend across business units, geographies, years, etc.

Supply market competitiveness

Reverse e-Auctions require a highly competitive environment with a high number of suppliers that can service the required category and are willing to partner with the company. Training can be provided to suppliers who are unfamiliar with online auctions to help them participate successfully. Further, companies can also provide positive scores to incumbents that have established a previous positive track record.

Compressible profit margins

Suppliers that operate on high margins tend to reflect these margins onto buyers owing to the competitive pressure of the auction.

Clearly defined requirements

Product/ service specifications and contractual terms and conditions must be clearly defined to the supplier to ensure a successful Reverse e-Auction.

Supplier switching cost and associated risk

Typically, Reverse e-Auctions are successful when the cost of switching suppliers ranges from low to medium and the associated risk is low. It is important to assess all cost elements of doing business with new suppliers to optimize Total Cost of Ownership (TCO).

Table 2: Key considerations when planning an e-Auction event

To be continued in the May issue.

| April 2015

25

Lead Story

Supplier

Collaboration The Game Changer Globalization of trade is here to stay. Today, companies have the option of sourcing from any part of the globe. Industries like pharmaceuticals, automobile, textiles, electronics and the like have widened their supplier base across the globe. The key to success in a globalized world is to develop collaborative sourcing strategies – an ability to build strong relationships with suppliers, and involve the sourcing partners in key decision making to ensure that there are no disruptions to the supply chain. The future belongs to firms who can collaborate – not just outsource. Editor of SCMPro, Girish V S takes a look at Supplier Collaboration.

G

lobalization of trade is here to stay. Today, companies have the option of sourcing from any part of the globe. Industries like pharmaceuticals, automobile, textiles, electronics and the like have widened their supplier base across the globe.

The key to success in a globalized world is to develop collaborative sourcing strategies – an ability to build strong relationships with suppliers, and involve the sourcing partners in key decision making to ensure that there are no disruptions to the supply chain. The future belongs to firms who can collaborate – not just outsource.

Editor of SCMPro, Girish V S takes a look at Supplier Collaboration.

Firms have flogged the product differentiator approach for a very long time. As time passes, products converge in terms of their features.

And the ability to create value by product differentiation diminishes.

Firms are now focusing on unlocking the value in their supplier relationships. Instead of merely reducing costs, firms are trying to build a differentiated relationship with a few suppliers, to create a 26

| April 2015

sustainable advantage. The move to sustainable collaboration is on.

Collaboration has many faces.

At the basic level, collaboration can mean signing a contract with a supplier, stating the delivery schedule, quality and numbers.

The interaction between the buyer and supplier is restricted to either e-mails or phone calls, with an odd meeting thrown in. Meetings are called only as a last resort – when there is a serious disruption. This works well in business as usual cases. But to capture the value of these relationships, firms need to look at full-fledged collaboration – where the supplier becomes a part of the product development effort and develops a vested interest in the success of the product. This means sharing the response to market volatility and complexity.

Collaboration in sourcing has three key areas – governance, commercial model and delivery. As firms start their collaboration, the first key area will be the alignment of the supply chain objectives of the firm and its suppliers. The

governance model should contain a clearly defined SOP, with roles, responsibilities and outcomes clearly defined. For alignment to really work, the firm has to develop a set of SMART metrics that it can share with the supplier. The supplier can now operate within these parameters and monitor these metrics for mutual benefit.

As firms start their collaboration, the first key area will be the alignment of the supply chain objectives of the firm and its suppliers

The key to successful collaboration Supplier collaboration is easier said than done. We are taught that the supply chain surplus – the difference between the revenue and the expenses involved in delivering the product has to be apportioned among all the players in the chain. This means that the commercial model should be

based on a transparent policy, with the members of the chain deriving their share of the benefits derived by their efforts. This is important, as the supplier will commit capital upfront, and will get paid only on delivery.

The second key to success is leadership and ownership of the collaboration. The leaders of both the teams should be able to work together as a unit, with the sole objective of delivering the expected customer experience.

This means trust, transparent reporting and a tight integration of the information flows in the chain.

This leads to shared responsibility.

No collaboration project can takeoff unless all parties concerned discuss, plan and agree to the contours of the relationship. This helps create shared responsibility and unity of purpose. Such ownership also brings in closer collaboration and increased stakeholder engagement, driving savings.

Quite often, the goals of collaboration need not be savings –it could be a business need– like enhanced customer service capability. For example, Tata Motors have a policy of hand delivery of emergency spares –born out of a need to ensure customer delight. A collaborative sourcing model will factor in these aspects, ensuring the ultimate objective of the supply chain.

This does not mean collaboration means ignoring savings. In a true collaborative scenario, savings are not measured on a forecast, but at the P&L level. The vendor has to track and report savings to a business unit, division and product level, ensuring a highly visible savings track.

A third factor for the success of collaboration is improved compliance. Unlike the traditional

model, where the supplier ties into a contract, and nothing else, collaboration provides a fertile soil for the parties to pursue initiatives that will increase compliance for the duration of the contract. Any savings will be subject to equitable sharing and hence the supplier need not spend time worrying about gain share. This means that all entities in the chain need to be able to track the savings to their P&L. Supplier collaboration also entails joint spend analysis and budget management. True collaboration among partners enables the entities to work together and validate spend analysis data using a common platform – which the buyer extends to the partner - this gives both the buyer and supplier accurate and actionable data to identify savings targets, efficiency initiatives, track compliance and enable better planning.

For the supply chain to benefit from collaboration, the entities should have visibility across the entire chain Yet another key to successful collaboration is knowledge transfer – a two way transfer of knowledge between the buyer and the supplier. The buyer brings intimate knowledge on customer preferences, buying behavior, market dynamics, while the suppliers bring in their expert knowledge on the part or product.

This free exchange enables all partners to focus on their core strengths, while retaining their competitive advantage.

Closing the Gaps For supplier collaboration to work, there should be a high degree of transparency in the data flows in the entire chain. Current supply chain visibility is most often restricted to

one node forward and backward.

For the supply chain to benefit from collaboration, the entities should have visibility across the entire chain. Gaps in information or differing quality of information across the chain is anathema to collaboration. Remember, supplier collaboration is not a bilateral affair – it is a multi –lateral project.

A sourcing team has to take a call on both long term and short term issues. These are not restricted to savings, but deal with product features, innovation and business compulsions. For this to work, we need to close the information gaps.

Today, with the convergence of social media, mobility, analytics and cloud, there is an explosion of unstructured data – popularly called Big Data. Supply chains need to harness big data – data that resides in the individual systems with all partners in the chain.

These requirements call for an enhanced emphasis on information technology, data visualization, analytics and information delivery systems.

Conclusion Collaboration is the emerging paradigm for supply chains. If undertaken in the right spirit, it unlocks value for all partners.

However, collaboration is neither quick nor easy. But is it worthwhile at this stage of supply chain evolution? Experiences of firms in developed nations prove that collaboration does deliver returnsone study shows that collaboration delivers a profit uplift of five percent to 11 percent through both increased sales and reduced costs.

Collaboration will take time and effort to overcome the inertia. All partners need to recognize this and build an appropriately long-term perspective into their goals and expectations for the collaboration.

| April 2015

27

Feature

Supply Chain

A Differentiating Factor

Demanding competition in today’s global markets, introduction of products with short life cycles, and the discriminating expectations of customers have forced business enterprises to invest in, and focus attention on their supply chains. Supply chain management has increasingly become an inevitable challenge to most companies to survive and prosper in the global competitive environment. Amit Banerjee writes about how TPG created a differentiated supply chain.

M

any of the trends in the auto industry are reinforcing the need to redefine supply chain strategies, layouts, and operations etc. To improve profitability and efficiency, automotive players are seeking ways to achieve operational excellence, reduce operating cost and enhance customer service through efficient supply chain

Indian Auto component Industry Indian automobile and auto components industry are on a roll and there is a massive scope for improvement and augmentation of supply chain in this sector. India has become a most sought after destination for foreign companies to set up their facilities and form alliances with domestic companies.

The Indian economy is now gaining momentum in the world of free trade and liberal movements of goods and services between countries. Low cost of manufacturing and conducive government support have been the major drivers for foreign companies investing in India. Therefore efficiency in supply chain management will be critical for India’s automobile success.

Amit Dev Banerjee, Head Supply Chain and Demand Fulfillment, Tata Motors Ltd.

28

| April 2015

Our experience at Tata Genuine Parts (TGP) is an example of how

firms should re-focus on becoming customer centric. TGP customers’ main requirements are right parts at right price and at right time.

Logistics is back bone for fulfillment of customer requirements at right time.

This could be a differentiating factor as well.

The proof of the pudding in in the eating, goes the old adage. Over the years TGP has fine-tuned its approach to supply chains. TGP focuses on customer centricity. A few simple steps has ensured TGP stays focused on the customer: • Milk run collection and secondary distribution for increased fill rates and efficient distribution.

• Direct supplies from vendors, saving of time and money.

• An Industry first – TGP rolls out hand carry mode for emergency customer orders.

• Milk run routing through software.

• New rate contracts through e-bidding.

• At least three service providers on each sector for better competition and services.

• Rapid customer care centers (RCCs) at state level for 24hrs deliveries anywhere in India.

To help the supply chain stay focused on the customer needs, TGP has customized systems like SRM and WMS. Further milk run collection is outsourced to professional 3PL vendors for smooth coordination. Milk run collection has resulted in better fill rate. Similarly outbound milk run has reduced total order cycle time.

Both these initiative has resulted into lower inventory levels and better ROI to the channel partners and customers.

frequent reviews of Planning, results and reaction plan.

• Special training started at key areas and implementation of Kaizen • Fast moving parts are kept near packing area to reduce picking time.

Logistics challenges to firms who wish to create a differentiated supply chain:

There are three pillars of a successful supply chain – sourcing, storing (or warehousing) and Logistics. Each has a role to play in improving customer centricity and efficiency.

• Outsourced vehicles, unorganized transporters

Sourcing is an important domain in supply chain management. Therefore, it is no surprise that innovations in supply chain should start with sourcing. Sourcing should ensure ‘All Time Availability’ of parts.

Sourcing helps the firm by proactive scheduling, ready stocking of new model parts, creating a replenishment model for ensuring ‘No Stock Out’ situation, develop a very high degree of transparency with vendor partners on stocking norms and last, deliver higher inventory turn around.

• Cooling time at collection hubs

The second pillar is storing or warehousing. Good warehousing practices should start with integrating technology into warehouse operations. For example, RF based barcode scanning using hand held terminals can reduce wrong binning, picking and claims. Some of the best practices that can be adopted are: • Rapid customer care centers at major highway junctions to cover any location in India within 24 hours • Kitting and slow moving parts in a separate warehouse to reduce the overheads • Concept of Plan, Do, Check, Act started for all key deliverables in warehouses. This brought in

• Lack of organized PTL service providers • Lack of professional manpower • Delays and uncertainties • Visibility of the consignmentNon availability of GPS fitted vehicles • Damages due to transshipment / Rains-Non availability of direct containerized vehicles • Multiple handlings-Lack of proper material handling equipment • Wrong deliveries / Short deliveries India is an extremely price sensitive market. A low priced, economy model of freight movement will find acceptance among firms. However, supply chain managers will expect the goods reach in the right condition, at right time, without damages and delays. To help customer service, managers want proactiveconsignment tracking and preinformation on unavoidable delays.

Apart from this, the 3PL service provider should have expertise in handling of materials varying in size, shape and composition, inbound logistics - end to end cost effective solutions and seamless integration.

To achieve this, the 3PL provider should be able to integrate with the

IT systems in the company, and the scale of operations should match the variable demands by the company.

This will include VORs - Prioritization in network, real time customer interface and an ability to support B2B e-commerce kind of business.

A brief on how TPG has tackled these through their supply chain strategy: A theoretical analysis is of little significance to a practitioners. TPG has addressed these issues by focusing on a few core issues: Poor Fill Rates and concern on vendor supplies was overcome by designing efficient milk run collection operations and advance scheduling.

Delays and damages in PTL operations was addressed by converting 80% distribution through FTL or dedicated milk run vehicles. This has ensured safe and timely deliveries, at the same time at reduced costs.

Emergency deliveries to odd locations was enabled by designing an industry first - hand carry mode which customizes the mode of transportation according to the destination and type of consignment.

In addition, a few changes were made in packaging – by ensuring supply from vendors in TATA branded packaging: ready to sale material getting directly from vendors. This saves warehouse processing time as well as warehouse space. Introduction of Parts’ Super Market at vendors’ premises and Implementation of Vendor Managed Inventory (VMI) To help VMI, Online access was given to vendors to view the stocks at warehouses, Min-Max and Replenishment levels were fixed for parts based on transit time and consumption pattern. Moreover, supply from vendors based on lot size and replenishment trigger and visual control on inventory level exercised at warehouse based on color coding of racks were resorted to. | April 2015

29

SME Corner

Business Model Innovation in SME’s

The owners of a small business are often technocrats, with a deep understanding of the products or services, and lesser understanding of the nuances of other aspects of running a business. For one, their inability to successfully commercialize their products. The second issue is the expansion of the business beyond the immediate neighborhood and finally, they need to learn to create alternate streams of income from their intellectual property. This calls for a revamp of their existing business models. This article looks at the new imperatives for a SME business.

M

any small and medium enterprises plateau out quickly, unable to scale their operations beyond the initial growth thrust. The business models that helped them gain initial success, often traps them into a low growth orbit. The next phase of growth needs a radically different plan – a revisit

A Business model is the logic by which a firm will deliver its promise to the customer. Which means, when customer preferences change, the business has to innovate its business model 30

| April 2015

of their business models. One area where small businesses falter is in taking the product to the market.

A go to market strategy for an SME is quite different from that of large corporates. Agility in responding to the customer preferences dictate a very powerful innovation framework, incorporating business environment changes and product innovations.

In today’s environment, it includes open collaboration, with free flow of information and knowledge across the value chain.

A Business model is the logic by which a firm will deliver its promise to the customer. Which means, when customer preferences change, the business has to innovate its

business model. This may be through re-configuration of the product or service, change the technology or a product replacement. The aim of a change in business model is to re-capture the customer. Firms can innovate either in isolation or in tandem with the rest of the ecosystem players. And as the world trade integrates, SME firms will need to learn the art of collaborative innovation – with the aim of creating a supply chain surplus. How the surplus will be divided, is a matter of debate now.

Studies across the globe have shown that in countries where the spirit of innovation is alive, SME’s thrive. And one of the reasons for the success of

an SME is an enabling ecosystem. As businesses grow, they need to look for market expansion, which again calls for changes in the business model.

Most SME’s operating today do not have a well-defined business model, or management processes. Such businesses, which do not have a differentiated model, compete on price and availability. They cater to customers who are price conscious, or are in immediate need. This is the commoditization of products, and these SMEs are doing business like most of the competition. They are caught in the commodity trap.

Academicians have defined a business model as consisting of seven core building blocks: the value proposition (product, services and process) delivered by the business; customer and groups served by the business; the value Chain; the competencies the firm has like technology, human resource, organizational system and culture; the networks – physical, digital and virtual; the tangible and intangible relations; and the turnover structure, cost structure and revenue flow. To be successful, an SME must be able to handle all these seven core business model components.

The Case for Innovation As firms start dealing with a global customer base, they need to open themselves up to ideas from across the value chain - In the emerging business ecosystem, SME’s should take the time to understand the supply chain all the way back to the basic raw materials. This may present them with opportunities for major technical shifts or cost reduction.

This leads to substantial investment to study the customer’s customer (the financial services industry has institutionalized this as Know your customers customer) and to learn about the deeper unmet needs and opportunities in the market. To do this, SME’s need to experiment with alternative distribution channels.

SME’s need to move from offering

products to offering services, and bring in new technologies to support this.

The SME has to constantly ask itself Who are my customers? What do they need? How do we meet the need?

What do we provide? How do we differentiate and sustain advantage?

And most important, how do we make money? If the SME notices that the answers to these questions re not yielding the planned revenues, it is time to look at innovating the business model. An innovation seeks to reconfigure a product to meet changing customer tastes. According to researchers like Chesbrough, innovation is no longer a source of competitive advantage but has become a competitive necessity While looking for a solution to these questions, the SME can draw on the technology and expertise of other members of the value chain.

The Business Ecosystem It has been observed that in times of economic crisis, the SMEs are the hardest hit. Their small size and limited market reach, reduce their bargaining power. For SME’s to survive and thrive, the business ecosystem has to be benign. Even in developed nations, where the legislative frameworks are in place to reduce unhealthy practices, SMEs do not have it easy. In a recent report from the UK, most large buyers were found guilty of delaying and squeezing their SME suppliers. The SME needs resources – human, financial, technology and systems to deliver value. Good infrastructure and the right business environment can help an SME. On the other hand, a non-conducive business environment characterized by lack of infrastructure and too much bureaucracy may stymie the efforts of the SME when innovating their business model for commercialization purposes. This is where collaboration could help.

SME’s need to give up their lack of trust on other entities and embrace

open innovation – integrate into an ecosystem where the sum of parts is greater than the individual parts.

The Idea of Collaboration For a long while, the accepted paradigm for a SME was to work in a silo – not sharing its manufacturing process, technology and innovations with any other entity, fearing the loss of its competitive advantage.

The owner was the fountainhead of all decisions and the secrets were passed on from generation to generation. Today, customer tastes are changing rapidly. A wired world brings the best practices and products from across the globe to customers.

A large corporate has the ability to straddle markets with ease. But for a SME, this comes with a steep price tag attached. One way out for the SME is to collaborate. According to Henry Chesbrough, the American organizational theorist, “…idea generation for products and services has become a paradigm that assumes that firms can and should use external ideas and internal ideas on the path to the market.” In India, it is estimated that about 40 percent of our exports come from SME’s. These firms are far removed from their customers.

Hence, they need to collaborate with

A business model can be made great and productive when the stakeholders perfectly understand all the elements of the building blocks of the model, and know when and what changes have to be made in the plan in order to achieve sustained growth for the company. | April 2015

31

SME Corner the other entities in the value chain to understand shifting customer preferences.

An interesting collaboration effort is between competitors – not among the members of a supply chain - but among producers. An example could be from a garment manufacturer, where two producers could collaborate to create an economically viable minimum order size that will help both the parties to reduce the cost of the material and at the same time ensure quality supply. The supplier could be the one who can bring the producers together.

Conclusion The whole premise of innovation in business model is to arrest customer attrition and more important, get

them back into the firms fold. This will happen if the value proposition offered by the SME is what the customer wants. Therefore, an SME has to equip its managers to understand the core ideas of the existing business model. A business model can be made great and productive when the stakeholders perfectly understand all the elements of the building blocks of the model, and know when and what changes have to be made in the plan in order to achieve sustained growth for the company. At the same time, managers should also know when changes should be made to the existing business model in relation to changes in customer preferences, market dynamics for the products and the alternate channels available to the customer. In the absence of these, the SME managers should be empowered

to decide when to reinvent or realign the business model according to the dictates of the market, consumers, business environment or competitors.

A vital ingredient for the success of the SMEs is their ability to mold the business ecosystem so that owners and managers of business can identify and assimilate new and emerging technology to create value for their customers. This means they have to team up and learn to share information that could help various departments of the firm and unite them all under one umbrella seeking to deliver the firm profitably in the market

Performing Do wn

loa

din

Bu

g

Mo

del

Seeing

sin

Sensing

ng Letti

Continuous BM Innovation

d an ing on p y tot etati Pro erpr int

es

s

Closing action

Open mind

Closing/ action mind

Open heart

Closing/ action heart

Open will

Closing/ action will

go

s nes usi dels B w Mo Ne

n atio v o Inn Presencing

Who am I? What gives meaning to me and my business?

Source: Lindgren and Saghaug 2011

32

| April 2015

, sion n vi o n egy t isio Dec ls, stra a go

Letting come

Integ Busin ration of ess M new odels

Guru Speak

Building Dynamic

Institutions for the New

Networked

World

We live in interesting times, where knowledge, technology, and the medium of the Internet have rapidly converged to produce a rate of change not previously witnessed in human history. So the question remains: how do we take advantage of this situation for ourselves, our communities, our enterprises, and the general well-being of society at large? There are some principles that we must follow to approach this ideal state, and some important building blocks that must be put in place along the way.

The first signpost is to find a way to reduce the degree of complexity we face day-to-day, and in this regard it seems we have been looking in all the wrong places. Enterprises, for decades have been fighting a rear-guard action against increasing complexity, by focusing inwards, and generally getting nowhere. Why? Because the solution is in fact counter-intuitive.

We thought that by introducing standard information technologies, underpinned by common processes, we would see significant progress towards complexity reduction. In reality, we experienced the opposite, mainly because of all the exceptions that had to be accommodated in a fast changing and increasingly volatile world.

Dr John Gattorna, Supply Chain ‘thought leader’ & Author

34

| April 2015

The other realization that dawned on me during my years of contemplating the problems faced by enterprises is that, the way we design our organizations is fundamentally flawed.

The vertical functional structure may have worked in the early 20th Century, but only because customers were essentially disenfranchised.

In the new world where consumer power is king, the old functional structures are simply not responsive enough to the new demands placed on them. We still need deep specialisms inside the enterprise, but in addition, we need a second force to manage the horizontal flows of product, financial transactions, and information through the enterprise from supply - side to customer - side.

These horizontal flows are akin to the central nervous system in the human

The quality of data is a perennial challenge for supply chain management, but that challenge has just become a whole lot bigger

body, and just as critical; these days we call them supply chains or supply pathways.

And all along these supply pathways are dotted concentrations of people, behaving in different ways according to their individual mindset and particular situation, making decisions that affect the rest of the eco-systemwe call these people consumers and customers at the demand end; suppliers at the sourcing-end; and employees, staff, and management inside the enterprise itself. Indeed I would estimate that over 50 percent of the activity along enterprise chains is due to the presence of humans, yet we seem to be in denial about this reality, as evidenced by the lack of attention to integrating cultural considerations into the design and operation of supply chains, and the absence of this factor from university curricula. The truth is that enterprises, whether private or public, will never produce sustainable operational and financial performance until we recognize that this takes a tightly integrated multi-disciplinary effort all along the pathways that link the supply base with customers.

In our search for answers we must go well beyond the logistics networks and infrastructure that most enterprises have in place, and where cost reduction is the only measure of performance. We want to extend this narrow view of the world to the wider eco-system represented by supply chains that run from the supplier of raw materials, through manufacturing, distributors of different types, to the end consumer/ user. In this context, clever design can actually impact the top-line revenue and customer satisfaction, as well as reduce cost-to-serve. But to achieve this we have to accept that the entire enterprise must be mobilized for this purpose, and contribute to satisfying customer expectations as well as supplier expectations- that is perfect alignment in practice,

and organization design plays a big part in any success achieved. In this context, enterprises are in effect the aggregation of the supply chain that run through them. They are in effect the enterprise!

information and communications technology (ICT), the world is rapidly transforming. We call this phenomenon ‘digitization’. As supply chains have evolved from traditional models to inter-connected networks,

And all along these supply pathways are dotted concentrations of people, behaving in different ways according to their individual mindset and particular situation, making decisions that affect the rest of the eco-system Below is a short abstract of 12 issues I would like to flag:

Using ‘design thinking’ to evolve new supply chain configurations.

The days of ‘inside-out’ one-size-fitsall supply chain thinking are dead and buried. Replacing this outmoded and increasingly flawed concept is the more enlightened ‘outside-in’ thinking based on design thinking principles developed by Roger Martin, and used extensively by IDEO in product design.

And just in time too, for the world has become a dangerous and complex place in which to do business.

Interestingly, my own proprietary concept, dynamic alignment, developed over the last two decades of empirical work in the field, in effect follows design thinking principles, as we set out to align the enterprise with the way the market is structured, and in particular the dominant buying behaviors represented in the market, expressed as customer behavioral segments. Adoption of dynamic alignment principles has handsomely rewarded those global companies which have embraced this particular variant of design thinking.

Achieving ‘end-to-end’ digitization in your enterprise supply chains.

Driven by a combination of consumer demand and development of new

the pressing need for clean data, visibility, and speed along these supply chains has brought about the new era of ‘digitization’. The digitization trend has enabled firms to move away from the flawed concept of one-size-fits-all supply chain design, to the new multiple supply chain design configurations variously called ‘tailored’ or ‘dynamic’ supply chains. Now customers can not only access products and services through several different channels (omnichannels), they can also be physically fulfilled through a matching array of different supply chains according to their particular need at the time, and the customer’s propensity to pay. The result: happier customers, serviced to their satisfaction; and happier enterprises because the new finely tuned alignment allows them to achieve better margins while serving customers (through lower costs-toserve and higher sales revenues).

‘Big data’ and +‘Big calculations’ to reduce complexity in enterprise supply chains.

The quality of data is a perennial challenge for supply chain management, but that challenge has just become a whole lot bigger.

The outright failure of conventional ERP systems to deliver transactional data in a consistently intelligible form suitable for managing supply

| April 2015

35

Guru Speak chain operations has highlighted the pressing need for companies to build new data analytics capabilities inhouse, and urgently. The accessibility and especially the consistency of a Firm’s master data is an essential building block for enhanced supply chain performance and performance monitoring. Add to this, a veritable deluge of transactional data coming at the Firm from all sources (video and social media; mobile signals; purchase transactions; point-of-sale; mapping and GPS; and sensors in all formats), and you have the makings of what is being called ‘big data’. The good news is that we now have the technologies and analytical tools to extract new and valuable insights from this veritable sea of data. By harnessing these newly available technologies we can drive productivity increases along the entire length of enterprise supply chains.

Coping with major ‘unplannable’ disruptions in enterprise supply chains.

Sudden unexpected failures in supply chains can be due to multiple causes, including: - Disruptions: natural disasters, terrorism, and war; - Delays: due to inflexibility of supply; - Systems: failure of technology infrastructure; - Forecasts: inaccurate forecasts, lack of forecasting; - Capacity: capacity inflexibility; and the list goes on.

So many risks abound in the way contemporary supply chains are designed and operated. For instance, if lean principles are taken too far, and stocks of components and finished goods in the pipeline are reduced to very low levels in order to cut costs, it will become susceptible to even the smallest disruption in supply or fluctuation in demand. In these situations, it is prudent to hold reserves of inventory (buffers) along the supply chain in different stages of completion. This in-built redundancy 36

| April 2015

costs money, but has to be offset against the cost of lost sales and lost customers through non-supply.

Given the rise in terrorism, which has injected even more uncertainty into the operation of global supply chains, the solution is to put much more forethought into developing risk mitigation strategies, before

more women have entered the fields of engineering, manufacturing, operations and procurement and logistics, we see an increasing number of women in influential leadership roles in supply chain management.

More women are graduating from operations-based curricula in learning institutions, and these women are

As more women have entered the fields of engineering, manufacturing, operations, procurement and logistics, we see an increasing number of women in influential leadership roles in supply chain management something catastrophic happens.

Campaign supply chains – bridging the gap between supply base and major project customers or owners.

One type of supply chain that has so far escaped formal attention is for the construction of major capital projects.

We call this type of supply chain, Campaign, because we’re talking big: big in scale, big in complexity, big in dollars. And long in time frame. To top it off, each project is unique. Capital projects can be Greenfield industrial sites or Brownfield projects, involving major overhauls of existing industrial facilities. It’s surprising that for such a rich industry – where an estimated US$1 trillion is spent in any one year, the construction industry has been relatively stagnant in its innovation compared with the strides made by other industries. To be brutal, ‘construction has historically been a slow, no-learning industry.’

Women leadership in global supply chains.

Women are increasingly playing pivotal leadership roles in private and public enterprises, and the armed forces, at a global level. As

moving experientially through their respective careers. Some are now running large divisions of multinational corporations and even entire global supply chains. To be qualified for these roles is not gender-based, but rather experiential-based, and increasingly we see more women with the appropriate experience, being considered for these senior supply chain roles.

Smoothing global trade flows through improved compliance and security protocols.

This is about how to address the impediments to world trade, across borders. The solution here is not more government regulation- quite the opposite. Instead, the suggestion is to map the major bilateral flows between pairs of major trading countries, and seek to apply some of the dynamic alignment at the macro-trade level. Tax, transfer pricing in multinational corporations, and Customs reforms will all be integral to the sweeping changes that are mandatory if world trade is to be unshackled from current impediments, and let fly for the greater good of world communities.

It is a serious issue because it is materially affecting growth in a

certainly want to apply different solutions to that group, otherwise we will find ourselves involved in needless ‘over-servicing’.

The impact of ‘conscious capitalism’ on the design and operation of enterprise supply chains.

negative way in many economies that are trying to raise the living standards of their respective populations.

CEO perspectives on enterprise supply chains.

From Asia to Latin America, entering high-growth markets has been a primary focus, but many executives are now debating how to best scale their operating models and sustain their success. Regardless of the size or presence of the company, growing globally can be tricky.

Achieving a ‘social license to operating’ in sustainablesensitive operation environments.

Increasingly, consumers of FMCG products are putting pressure on retailers, manufacturers, and upstream processors to know more about the ingredients that go into the products they buy, and where they are sourced from. This demand for ‘traceability’ is driven by social responsibility among consumers, and

reinforced by the efforts of other activists such as Greenpeace, all of whom have an underlying objective of sustainability and corporate social responsibility. But where exactly does the truth lie?

The enlightened view of contemporary supply chains is that they are driven by people [rather than technology and asset utilization as often thought]. These people come in various forms: customers and consumers, suppliers, employees and leaders in the business, and various other stakeholders in the operating environment- the wider community, investors, and government. So there is immediate overlap here with the notion of ‘conscious capitalism’, where all the same stakeholders are present. Our premise is that if we can achieve this, all stakeholders will be satisfied, and the resources used will be optimal.

The enlightened view of contemporary supply chains is that they are driven by people [rather than technology and asset utilisation as often thought] Developing strategic partners in enterprise supply chains – a special case of ‘alignment’.

One subset of the Gattorna behavioral segmentation methodology as developed in the field has been the identification of those parties (demand-side and supply-side) who have genuine ‘collaborative values, and prefer to work in partnership for mutual benefit. But not everyone will behave collaboratively, and we

A final word As we approach the middle of the second decade of the 21st Century, we can look back on the last 60 years and say that we have learned a lot.

We know what all the dots are now, but we must join them all to come up with the appropriate solutions for a particular situation or in a marketplace environment. There are no more excuses- the guesswork has to stop- and more precise methods used to solve problems and meet challenges, for the benefit of all stakeholders | April 2015

37

India Salary Survey

2015

The Year

of

Expect tions

By Darryl Judd Global Chief Operating Officer, Logistics Executive Group and Sheila Naravane, Executive Director, Logistics Executive Group India

"Every year, in April, SCMPro brings you a synopsis of a very interesting survey undertaken by Logistics Executive – the India Supply Chain Salary survey. This year too, we are continuing with the tradition."

Darryl Judd, Global Chief Operating Officer, Logistics Executive Group

38

| April 2015

I

f the headline stories are to be believed, India is about to embark on a jobs growth cycle not seen for decades. Certainly employers have given a big ‘tick in the box’ to the 2015 Union Budget. With the government putting strong emphasis on job creation, experts say measures proposed in the Budget will help create millions of employment opportunities in coming years. Add to that a GDP growth rate that is being pegged at near 7 percent, after sub-five percent growth in recent past, there’s no doubt that businesses are expected to grow. The result – an expected strong job market rally.

India Inc. is planning to create close to 10 lakh new jobs and dole out pay hikes of up to 40 per cent for best performers in 2015. The government's 'Make in India' program designed to provide a welcome boost to India’s manufacturing hub represents a huge opportunity for job creation.

Moreover, the increased emphasis on the development of skills and improving education will ensure a larger pool of youth who are ‘jobready’ as we recruiters like to call.

"With the recent budget, the government has sent the strongest signal possible that its focus will be to drive growth and facilitate investment in high productivity sectors like infrastructure, manufacturing and related industries. Mr. L. R. Sridhar, Managing Director of global

professional services company Logistics Executive Group India says “This assures creation of a vast pool of job opportunities in the coming years. We expect to see increased investment in sectors such as manufacturing, auto and defense equipment will open job avenues, steer economic growth and overall development.” In addition, government’s emphasis on manufacturing sector is expected to create 100 million jobs in next ten years in manufacturing, mining and infrastructure sectors, and the plan to create 100 smart cities is expected to fuel job growth even further.

Taking note of the need to increase availability of job-ready talent, one of the significant things to emerge from this year’s budget was the announcement by Finance Minister, Mr Arun Jaitley that government will soon be launching a National Skills Mission through the Skill Development and Entrepreneurship Ministry. Whilst a seemingly minor comment, this key initiative has the potential to impact India’s ability to sustain the growth the government envisions.

We are strong advocates of training and education to help improve overall quality of India’s workforce. Training however is just one part of the equation. It is clear that launching a National Skills Mission program will help accelerate the shift needed for jobs. Hiring in India needs to move from 'qualification' to 'skill’ based to ensure that even the educational institutions are focused on imparting skills that lead to employability.

If plans are to be realized then the National Skills Mission will consolidate skill initiatives spread across several ministries and “allow us to standardize procedures and outcomes across our 31 sector skill councils” the Finance Minister said during his announcement. He then went on to note, "to ensure that our young get proper jobs, we have to aim to make India the manufacturing hub of the world."

India

salary Guide

2015

The research and information contained within this report has been compiled by the Logistics Executive Group from research undertaken and intelligence gathered in the course of its everyday business activities.

Methodology Logistics Executive Group is the acknowledged industry leader providing a suite of whole-of-lifecycle business services including Corporate Advisory, Executive Search and specialist Supply Chain and Logistics Training. Founded in 1999, Logistics Executive Group has offices in India, Australia, Singapore, Hong Kong, China, Dubai and United Kingdom helping to recruit, build world-class leadership and drive business performance with integrated Corporate Advisory services. The company has an active database in excess of 150,000 logistics and supply chain professionals and are a single source for leadership development, talent & recruitment services and business consulting to empower businesses and leaders to reach their goals.

The information contained within this report is compiled from data contained within our extensive database, business acquired intelligence and regular research surveys, which includes the Global Employment Market Report (now in its 9th year). The Global Employment Market Report is an online survey

of approximately 10-15 minute duration and was emailed to more than 70,000 people within the Supply Chain & Logistics Industry in late 2014. About 6,178 respondents completed the survey. NB: The results are purely indicative in terms of overall trends within the industry.

Further to this, the Logistics Executive Group undertook a series of interviews with HRD‘s and HR Personnel validating this data and this information has been incorporated into the final document produced.

Sources for this particular research includes: • Human Resource Director Interviews • Business briefing provided by CEO’s of leading 3PL companies • Logistics Executive’s Employment Market Report data from late 2014 • Logistics Executive’s business intelligence database • Candidate and Client interviews (conducted by Logistics Executive Group) | April 2015

39

India Salary Survey Report 2015

Industry / Supply Chain Management Position

Mumbai

MD / GM Logistics

Chennai

Delhi

Bangalore

Pune

Hyderabad

75 – 1.2 (Cr)

75 - 90

75 – 1 (Cr)

75 - 85

75 - 80

50 - 75

Supply Chain VP / Director

55 - 85

40 - 60

50 - 80

35 - 50

30 - 45

30 - 50

Logistics Director

40 - 60

40 - 55

40 - 65

35 - 45

35 - 50

35 - 45

Operation / Warehousing Regional Logistics Manager

18 - 25

14- 20

18 - 24

14 - 20

10- 18

10 - 18

Warehouse / DC Manager

8 - 14

6-9

7 - 13

6-8

5 - 10

6-9

Warehouse/Operations Executive Lean / Quality / Six Sigma Manager Logistics Specialist

3-6

2-5

3-6

2-5

2-6

2-4

9 - 18

8 - 15

9 - 17

7 - 12

7 - 15

8 - 12

6-9

5-7

5-8

4-6

3-6

3-6

50- 75

35 - 50

40 - 75

35 - 50

25 - 50

25 - 40

Procurement / Purchasing Procurement VP / Director Senior Procurement Manager

15 - 25

12 - 16

13 - 18

12 - 15

12 - 14

10 - 14

Senior Quality Manager

10 - 20

8 - 14

10 - 20

10- 18

8 - 14

8 - 13

Sourcing Manager

8 - 15

6 - 14

8 - 15

7 - 12

6 - 10

5 - 10

Purchasing Manager

6 - 10

5-9

6 - 10

5-9

5-8

5-7

3- 6

2-4

3-6

3-5

2-5

2-5

Demand/ Supply Planning Head

25 - 35

18 - 25

22 - 30

20 - 25

16 - 25

18 - 25

Supply Chain Manager

14 - 20

13 - 18

14 - 20

13 - 17

12 - 15

10 - 13

Planning / Forecast Manager

8 - 12

6-9

8 - 12

6-9

6-8

7-9

Purchasing Officer Inventory, Planning & Demand

Planner

6-9

5-8

6-9

5-7

5-7

5-7

Commodity Manager

9 - 15

7 - 10

8 - 14

9 - 12

9 - 10

8 - 10

Inventory Manager

7 - 10

5-7

7 - 10

5-7

5-7

5-7

Inventory Controller

4-8

3-6

4-7

3-6

3-5

3-5

Consulting &Project Management Supply Chain Consultant

15 - 35

12 - 30

15 - 35

15 - 25

10- 15

10 - 15

Project Implementation Manager

13 - 20

10 - 14

10 - 19

13 - 18

9 - 14

10 - 14

Project Manager

15 - 20

14 - 16

13 - 20

12 - 15

10 - 12

10 - 13

Transport General Manager Transport

25 - 40

20 - 25

20 - 35

20 - 30

20 - 25

20 - 22

National Distribution Head

30 - 50

25 - 35

25 - 45

15 - 26

15 - 25

15 - 25

Zonal Distribution Manager

13 - 17

10 - 12

10 - 15

10 - 12

11 - 14

11 - 14

6-9

6-8

6-8

5-6

3-5

3-5

Transport Controller Sales & Marketing Sales Director

40 - 75

35 - 50

35 - 75

30 - 45

25 - 40

25 - 40

Area Sales Manager

14 - 17

12 - 15

14 - 17

12 - 15

10 - 12

10 - 12

Regional Brand Director

20 - 40

20 - 35

20 - 35

15 - 30

14 - 25

13 - 25

Regional Brand Manager

16 - 25

15 - 22

15 - 25

12 - 20

13 - 17

12 - 17

Territory Sales Manager

8 - 13

7 - 11

7 - 13

6-9

6-9

6-8

Salary data is shown as a range from low – high and is displayed as an Annual Base Salary in Lakhs Per Annum.

Additional benefits such as annual bonus, company vehicles or travel allowances may apply. (Cr) = Crores.

40

| April 2015

Logistics Service Providers (LSP/3PL’s) Position CEO / MD / Country Manager

Mumbai

Chennai

Delhi

Bangalore

Pune

Hyderabad

85 - 2.0 (Cr) 75 - 1.5(Cr) 80 - 2.0 (Cr) 75 - 1.5 (Cr) 60 - 1.0 (Cr) 60 - 1.0 (Cr)

General Manager

40 - 55

35 - 50

40 - 55

35 - 45

30- 40

35 - 40

Regional Manager

25- 35

20 - 25

25 - 35

20 - 25

14 - 20

14 - 20

Branch Manager

15- 20

9- 14

15 - 20

8 - 12

8 - 10

8 - 10

VP / GM / Sales Director

45 - 60

40 - 50

45 - 60

35 - 45

35 - 40

25 - 35

National Sales Manager Regional Sales Manager / Territory Manager BD Manager (3PL)

40 - 50

30 - 40

35 - 50

25 - 35

25 - 35

25 - 28

25- 35

18 - 22

22 - 32

14 - 18

14 - 18

12 - 15

12 - 18

10 - 14

10 - 18

10 - 14

8 - 12

8 - 12

BD Manager (Freight)

14 - 20

10 - 15

12 - 15

8 - 13

7 - 12

7 - 11

Key Account Manager

Sales & BD

12- 18

9 - 12

10 - 18

10 - 13

8 - 10

6-8

Sales Executive

5-7

4-6

5-7

4-6

3-5

3-5

Marketing Manager

7 - 10

5-8

6-9

5-9

5-7

4-7

35 - 45

25 - 35

35 - 40

22 - 35

20 - 30

18 - 30

9 - 15

7 - 10

8 - 13

8 - 12

6-9

6-8

6 - 10

5-8

6-8

5 -9

5-7

5-7

6 - 10

6-8

6 - 10

5-8

5-7

5-6

15 - 20

12 - 15

15 - 18

9 - 12

8 - 10

8 - 10

3-5

3-4

3-5

3-5

3-4

3- 4

15 - 19

12 - 14

12 - 15

10 - 14

10 - 12

8 - 12

18 - 22

14 - 20

16 - 20

14 - 18

10 - 12

12 - 14

General Manager Transport

40 - 60

25 - 40

35 - 50

25 - 40

25 - 35

20 - 30

National Transport Manager

35 - 45

30 - 40

35 - 40

25 - 35

25 - 35

25 - 35

Line-haul Manager

22 - 28

20 - 22

20 - 24

16 - 20

15 - 22

12 - 17

National Compliance Manager

15 - 25

12 - 18

15 - 25

10 - 14

8 - 10

7 - 12

Site Manager

12 - 15

9-13

10 - 14

8 - 12

7 - 10

7 - 10

Fleet Manager

12 - 15

8 - 12

12 - 15

8 - 10

7-9

7-9

7-9

6-9

7-9

5-7

5-6

4-6

Operations 3PL Contract Manager Warehouse/Operations/DC Site Manager Warehouse/Operations Executive Import/Export Manager Air Freight / Sea Freight Manager Shipping Clerk Project Manager Project Implementation Manager Project Manager – WMS/TMS Transport

Workshop Manager

Salary data is shown as a range from low – high and is displayed as an Annual Base Salary in Lakhs Per Annum.

Additional benefits such as annual bonus, company vehicles or travel allowances may apply. (Cr) = Crores.

Disclaimer: Logistics Executive is committed to the highest standard and quality of information and every attempt has been made to present up-to-date, accurate information. The information contained herein is general in nature and is not intended as, and should not be construed as professional advice provided by Logistics Executive to the reader. While every effort has been made to offer current and accurate information, errors can occur. Much of this information is obtained from records that for reasons of privacy are confidential. This information is provided as is, with no guaranty of completeness, accuracy, or timeliness, and without warranty of any kind, expressed or implied, including any warranty of performance, merchantability, or fitness for a particular purpose. In addition, changes may be made in this information from time to time without notice to the user. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of additional factors if any action is to be contemplated. The reader should contact a professional prior to taking any action based upon this information. Logistics Executive assumes no obligation to inform the reader of any changes in law, business environment, or other factors that could affect the information contained herein. | April 2015

41

LSP Focus

State of

Supply CGN, a global business performance consulting firm operating across the US, Europe and Asia focuses on supply chain enhancements that drive business performance improvement. In India, CGN works across heavy engineering, automotive and consumer goods sectors. In these sectors, services span the end-to-end supply chain – from designing appropriate supply chain strategies, to fixing specific components of the supply chain or improving the quality and reliability of supply chain planning. SCMPro spoke to Mr. Alagu Balaraman, Partner and MD of India operations on trends in logistics in India. We bring you excerpts from the interview.

What are the trends that persist in Indian 3PL logistics scene? How is it different from the global trends?

3PL’s in India largely offer plain vanilla transportation services, with the majority of providers having a fleet of 5 trucks or less. Globally, 3PL industry has undergone consolidation with 3PL providers offering not only multimodal transport (Rail, Air, Waterways) but value added services like shipment routing/consolidation, freight audit, freight forwarding, warehouse management etc. Clearly there is a big market for value added services in India, which is waiting to be explored.

Alagu Balaraman, Partner and Managing Director – Indian Operations, CGN and Associates India Pvt. Ltd.

42

| April 2015

Are there any challenges in terms of Regulatory Policies, Tax and Fiscal provisions, and most importantly

–Infrastructure holding back the development of the sector?

India’s freight transport relies heavily on road network which accounts for more than 50 % of total transport.

This is despite the fact that most freight traffic consists of bulk material transported over long distance. These can be served more economically by rail and waterways, but this hasn’t happened due to reliability and speed issues.

Weak infrastructure, poor connectivity and a complex tax regime has been the Achilles heel for India’s supply chain service providers.

There is a lack of adequate logistics infrastructure. For example, the

Chains in India

development of highways, port connectivity, dedicated freight corridors and establishment of free trade warehousing zones are under developed. The poor infrastructure combined with inadequate utilization of existing technologies, such as EDI and electronic toll ways, results in a high cost of transportation. Logistics cost in India is 14% of GDP as opposed to 8-9 % in developed countries. Complex taxation and the use of different road permits in different states also act as additional roadblocks to achieving higher efficiency in transport sector.

Do you see the trend of outsourcing in logistics growing?

According to ASSOCHAM, around 55 per cent of Indian companies’ outsourced logistic services such supply chain management and warehousing in 2009, as compared to about 10-15 per cent in 1999. As per the industry estimates, the increasing trend of outsourcing is expected to result in the growth of third-party logistics market at a CAGR of about 22 per cent, during 2012-15.

As the organizations continue to tap into new markets and customer segments, the trend has been focussing on core competencies. As a result, outsourcing in logistics is expected to grow.

According to you what are the essentials in a 3PL - customer relationship? Is it changing?

The essential part in relationship remains the same: communicating the expectations and requirements up front, before the deal is sealed.

However, the customer expectations and competition within the marketplace have been increasing, pushing the 3PL providers to become service providers in every sense. More and more companies are getting the 3PL partners involved in their business plans and more closely linked into their operations. They allow them to get such an insight to enable 3PL providers to assist proactively with current and future needs.

4PL is replacing 3PL. Can you help us understand its role in the future logistics, and services evolving around this concept? What is your roadmap?

4PL acts as a single interface between client organization and multiple logistics service providers. Ideally, all the aspects of client’s supply chain should be managed by a 4PL provider,

with 4PL remaining neutral and managing the supply chain irrespective of what carriers, forwarders, or warehouses are used. That said, the basic concept of 3PL i.e. asset based providers is here to stay with many 3PL providers evolving to extend services offered by 4PL providers.

The basic concept of 3PL i.e. asset based providers is here to stay with many 3PL providers evolving to extend services offered by 4PL providers How do you help your customers manage SCM risk?

In today’s global economy, companies are interdependent on others to create and deliver value to their customers.

These interdependencies exist along the supply chain with multiple vulnerabilities which are outside the scope of control the organization.

Managing supply chain risk successfully essentially means putting in place a system to identify and measure | April 2015

43

LSP Focus the risk, both from impact as well as investment perspectives. We help our clients analyze the business, stake holders, and the business environment and help them measure the impact to a particular revenue stream, cash flow, and product / SKUs. Quantifying a risk makes it more tangible, rather than a theoretical concept.

To help our clients, we analyse risks, devise solutions to manage them and help implement the necessary policies and processes. Often this includes developing the skills of the people working in clients’ companies.

What areas would you like to see more technology penetration?

In India, technology has mostly been used in SCM in areas of transaction execution and coordination activities.

The next technological adoption for supply chains to deliver a business advantage has to be in area of data analytics and decision support systems. Internet penetration in India is around 11% as opposed to global average of 36%. As the internet penetration and disposable income level increases, a lot of demand will be arising out of tier 3 and tier 4 cities.

There will be greater expectations of responsiveness and greater pressure on cost management. Data volumes will increase exponentially.

Supply chain organizations with ability to react quickly to real time data from Point of Sale and dynamic pipeline inventories will be in a better position to serve these markets.

Are there any challenges on the talent front? How are you addressing them?

Talent availability as well as skill gap is going to continue. For too long, supply

Weak infrastructure, poor connectivity and a complex tax regime has been the Achilles heel for India’s supply chain service providers 44

| April 2015

chain management and logistics has been relegated to a non-expert “Planning” department. The right skilled workers will be hard to find and even harder to retain.

Investment in process redesign and training to bridge the skill gap are necessary. Along with this, selective automation in manufacturing and material handling will be the way forward.

Are there any speed breakers in the growth of logistics sector? How do we deal with them?

Infrastructure continues to remain the biggest challenge being faced

by Indian logistics sector. Bad road condition, poor connectivity, lack of sea port capacities and unavailability of alternatives like inland / coastal water transport remain a huge challenge.

What is your outlook for 2015-16?

The volume of freight traffic is directly related to GDP of the country.

Therefore, as the GDP increases, the movement is expected to increase through all modes, with demand for movement of goods across the country from entry ports to manufacturing or distribution locations or from Manufacturers and distributors to consumers and exit ports.

Several global players are looking favourably at Indian transport sector and are entering India either by acquisition or through JV. Fed Ex-AFL, GATI-Kintesu World Express are some of the examples and this trend is expected to gain momentum in 201516.

Route management is a factor which could possibly lower logistics costs.

What has been your experience?

Route management is a complex exercise and work done by CGN in developed markets and in India show that it has good potential to impact both revenues and costs. Revenues go up by increasing product availability or reducing supply chain response time.

Costs go down by optimizing routes.

However, this is not simply about implementing a software tool – there is work to be done to align operational strategies, policies and processes.

Several global players are looking favourably at Indian transport sector and are entering India either by acquisition or through JV What is your key focus now?

With expected introduction of GST, supply chains will see a major change. The current distribution and warehousing networks, aimed at taking advantage of tax benefits will give way to operational efficiency with warehouses being reorganized to ensure better responsive and efficiencies of scale.

CGN has the expertise to help companies model a combination of location, costs, technology and risk to design efficient and responsive networks. Also, we have helped clients in India and SE Asia implement the changes and support with program management of setting up and relocating factories and warehouses.

What is your approach sustainability in Supply Chains?

to

Sustainable supply chain will involve integrating the environmentally and financially viable practices into the complete supply chain lifecycle right from product design to consumption and disposal. In transportation sector in India, Building the right network (an integrated mesh of rail and coastal waterways) will reduce the wastage caused by poor infrastructure which will not only decrease the usage of non-renewable transport fuel but also that of particulate emission & carbon footprint as well.

SCM subscription.indd 6

20-04-2015 11:32:51

SCMPro Classroom

Measurement of Bullwhip Effect in Supply Chain In a previous SCM class room, I had described what Bull whip effect means. Bullwhip creates distortion in supply chain and increases supply chain cost by increasing holding cost due to excess inventory at some outlets and sales loss at some outlets due to shortages. Measuring the bullwhip impact in an organization is an effective step towards understanding it and in turn tackling it. As we recall there are numerous reasons for bullwhip to exist in an organization.

They are primarily the asymmetry in information flow across various levels of supply chain complemented by marketing, sales and operations policy.

Measurement attempts and problems There are many conceptual issues related to the measurement of the bullwhip effect. The first and the foremost is the way the data is aggregated. Neither the business practice nor the current academic literature is clear about this matter.

The first real-world bullwhip example is based on European retail supply chain as estimated by an Economist Holstrom. He analyzed the orders flowing upstream from retail outlets back to the factory. Demand amplification was estimated via the coefficient of variation measure. But this study does not indicate the level at which the data was aggregated and the measurement was carried out. As you may recall I had indicated that the problem is when you do an aggregate forecasting, your forecast is perfect.

A disaggregate forecast can be very volatile at the same time create huge bullwhip in your supply chain eroding the total supply chain advantages.

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

46

| April 2015

Second, measuring the bullwhip effect does not reveal the causes that contribute the most and the solutions that are the most relevant. To assess the actual benefit of exchanging demand information, it is important to be able to measure which part

of the bullwhip effect is due to incomplete demand information in a particular supply chain. The reason of bullwhip could be your marketing and sales policies on one hand as well as operations on another.

A disaggregate forecast can be very volatile at the same time create huge bullwhip in your supply chain eroding the total supply chain advantages Disaggregation the way forward The first attempt should be to quantify the problem to mitigate the risk arising out of wrong aggregation.

According to Fransoo, the primary question is the question relating to aggregation of demand data.

First, if demand information is available at the each level, at each echelon, for each outlet for each day, then there are several ways to calculate bullwhip effect by aggregating the demand data differently. Four levels of aggregation can be distinguished at which

Sp opp onsors ortu nitie hip s avai lable also

Logistics & Supply Chain Summit:

Who should attend:

Emerging Trends & Future Outlook

• 3 PL/4PL Operators

• Logistic Companies • Storage and Packaging • Warehousing Operators

13th May, 2015 at Le – Meridien, New Delhi

• Technology Providers

The key sessions of the summit are

• E-tailing Companies

• Inaugural Session: Overview of the Logistics sector in India

• CFS • Supply Chain Management

• Logistics Innovation in focus • Driving Innovation in 3PL & policy, regulation and PPP in warehousing development • Advanced Supply Chain Strategies -The Supply Chain as a Strategic Tool Registration fee

INR 15,000 per delegate, +(12.36% service tax)

Early Bird Fee

INR 13,500 per delegate before 30th April 2015 +(12.36% service tax) Media Partner

• Legal Consultants • Services Providers • Inventory Managers • Solution Architects- Supply Chain Systems • IT Leads • CM Business Systems Analysts • Production /Demand/Material Planners etc

Contact Details: Vicky Pandita Infraline Technologies Ph:+91 120 66799130 Mobile: +91-9999592906 Email: vicky.pandita@infraline.com

Ankush Varshney Infraline Technologies Ph:+91 120 66799133 Mobile: +91-8800558226 Email: ankush.varshney@infraline.com | April 2015

47

SCMPro Classroom

The first attempt should be to quantify the problem to mitigate the risk arising out of wrong aggregation standard deviation of demand can be determined, assuming there are P products and M outlets in the supply chain under consideration: i. Product/outlet (w1) – this is the most detailed analysis, determining the standard deviation for all available demand series, resulting in P×M standard deviations and P×M bullwhip effect. ii. Product (w2) – the demand per product is aggregated over the outlet and this indicates the variability in demand of a product at the entire echelon, not distinguishing between individual outlets, and also assuming pooling between the outlets. This results in P bullwhip effect. iii. Outlet (w3) – aggregated over the products, this indicates the variability of demand of an outlet, 48

| April 2015

not distinguishing between individual products. This requires that the product demand be added up, e.g., by using some kind of weighing factor. This results in M bullwhip effects. iv. Echelons (w4) – aggregated over the outlet and products, the variability of total demand at the echelons can be determined.

Different products’ demands can be added up using a weighing factor which results in 1 bull whip effect.

Depending upon the aggregation level, at which the standard deviation is determined, many different bullwhip effects may occur. The main consideration for choosing a specific type of aggregation is the particular problem caused by demand fluctuation in a particular supply chain under investigation.

The measurement should give information about the causes of demand fluctuations. Also, while measuring the bullwhip effects in real supply chains, the use of demand data should be discussed to define the best way to gather and analyze data.

Secondly, understanding which part of the total bullwhip effect can

be attributed to a specific cause or reasons: will go a long way in minimizing the negative effect of bullwhip on supply chain profitability. i. Unclear ordering policies – meaning that order-matching takes place but rules for this are unclear so re-arranging data to account for the effect would not be possible ii. No data on real demand – separating out the effect of price fluctuations and of shortages gaming would require some data on real demand compared to sales. However, such real demand data will often not be available iii. No data on shortages – the comparisons of real demand with sales would be relevant for moments when shortages occur and price change. Such information is not always available; especially data on shortages and delivery performance are often not recorded systematically In the next column I, with help of an example, will demonstrate the impact of bullwhip on supply chain profitability and how to deal with it

Toshiba Logistics India Private Limited commences operations in India Toshiba Logistics India Private Limited (TLGI), a wholly owned subsidiary of Toshiba Logistics Corporation in Japan, has commenced operations in India. Founded in August 2014, TLGI has scaled up its expertise and skills in forward logistics to facilitate Toshiba Group companies execute timely delivery of industrial large scale products to their customers in India.

TLGI will be a comprehensive logistics provider operating with end-to-end logistics capabilities starting from transportation engineering, packing/repacking, order processing, Excise & Customs compliance and clearance, to timely and accurate delivery anywhere within India.

Commenting on the occasion, Mr. Hidenori Kanakubo, Managing Director of TLGI said, “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 as simultaneously exploring the opportunities to provide customers with additional value in new areas.”

Mr. Kenji Urai, Managing Director of Toshiba India Private Ltd.(TIPL), which oversees Toshiba’s operation in India added, “Secure and timely transportation of large scale products is very important for social infrastructure business. Ensuring the quality of products and time for delivery, Toshiba will offer reliable and extensive range of solutions/products to meet the requirements of the complete supply chain.”

Toshiba is expanding social infrastructure business by providing the various products such as super-critical steam turbine and generators, transmission & distribution equipment, motor and inverter.

I.G. International aims at banana exports worth Rs.60 crore in a couple of years India reports over 45% rise in banana exports in 2013-14 In a serious bid to claim a significant slice of revenue from banana exports, I G International Pvt Limited (IGIPL), one of the leading names in fresh fruits imports and exports in the country, is now looking at further banana export opportunities in Iraq, Iran and Saudi Arabia. The Delhi based company having significant presence in few other states too is now aiming at banana exports worth Rs. 60 crore in the next couple of years.

Early this month, the first consignment of superior quality of bananas was shipped by IGIPL to the Middle East. The company while has set up banana ripening facilities in Delhi, Mumbai and Jaipur, recently launched a new brand. IGIPL will now be selling quality bananas in the domestic and overseas markets under the brand name, Rich Banana. “The Rich Banana campaign has been launched keeping in mind both domestic and export markets. We are using ethylene absorbers and MAP bags to ensure quality of the banana maintained utmost at arrival,” said Mr. Tarun Arora, Director. IGIPL aims at banana farming of its own 10,000 acres in next three years while addressing the supply chain bottlenecks by using its own supply chain trucks. “The entire supply chain is under cold conditions which ensure that the quality is perfect at arrival,” said Mr. Tarun Arora. Though India remains the largest producer of bananas globally, due to supply chain issues and lack of post harvest management facilities, it exports only 0.3 per cent of its total banana produce while Ecuador and Philippines continue to be the two top banana exporting countries in the world. Using its expertise in post harvest handling and cold chain infrastructure, IGIPL is now aiming at bigger global opportunities when it comes to banana exports. The company is also focusing to increase its market share in bananas in India. “Currently we are in three cities and three export countries.

So in next phase, we are working closely with farmers to further improve on quality and to grow volumes,” added the IGIPL Director.

Interestingly, India which has been the largest producer of fresh bananas in the world but so far remained a small player when it comes to banana exports, reported a steady jump in the export of the crop in 2013-2014. According to export numbers released by APEDA, in 2013-14, the country exported 65,844 MT of bananas against 45,573.23 MT of exports of the fruit in the previous financial year. Banana is the fifth largest agricultural commodity in world trade after cereals, sugar, coffee and cocoa.

| April 2015

49

SCMPro Update

Localbanya.com now in Pune Mumbai based online grocer Localbanya announced its expansion into Pune on the back of a new round of funding received from Shrem Strategies in late 2014. Having started test runs in Pune since the beginning of February, Localbanya commenced full operations effective February 20th.

Customers will be able to enjoy the same convenience offered to Mumbai users including same day delivery.

The company which delivers groceries and household needs to customers’ doorsteps is now looking to take the brand to other major metros in the coming three months and starting operations in Pune is the first step in this process. “The launch of our services in Pune coupled with a fresh round of funding, sets us on our way to the next phase of our vision – taking brand Localbanya to as many Indian households as possible. We have gained a lot of experience here in Mumbai and feel this is the right time to expand our operations. If all goes well, we hope to be in 4-5 additional metros very shortly,” says Localbanya Co-founder Rashi Choudhary.

Nitan Chatwal, Promoter of Shrem Strategies adds, "Localbanya is one of the established players in the online grocery segment in Mumbai having been in operation for close to three years. They have put in place an aggressive expansion plan for 2015 to take the brand across India. The online grocery market is set to grow very rapidly in India over the coming years and we felt now is a good time to get in. Making a great investment decision involves various factors of which potential scale and timing are key. We felt these 2 crucial factors are perfect right now and it falls in line with our investment philosophy. The Localbanya team has done a fantastic job so far and we want to be part of their journey."

50

| April 2015

Outperform with the new Yale Maini Diesel forklift truck Maini Materials Movement Private Limited (“MMM”) is a leading industry player in the MATERIAL HANDLING, STORAGE SOLUTIONS and PEOPLE MOVEMENT space. MMM has strategic alliance with NACCO Materials Handling Group (NMHG), USA for manufacturing and marketing Yale brand Forklifts, High reach trucks, Order pickers, VNA etc. in India.

MMM’s manufacturing expertise combined with Yale’s global reputation for excellence and innovation delivers comprehensive material handling solutions to customers across sectors. The manufacture of selected Yale products in our state-of-the-art manufacturing facility in Bangalore enables us to respond quickly to the demands in a dynamic and rapidly expanding market place.

The introduction of new diesel counterbalance forklift truck will strengthen the position of Yale and MMM in the growing Indian forklift truck market.

Designed to meet the specific requirements of the Indian market, the New Yale - Maini diesel trucks are available with efficient, quiet, clean running engine. The range consists of GDP20UX (2000 kg) and GDP30UX (3000 kg) with 3.1 L engine which is ideally suitable for all standard applications.

Key Features of the truck: The ergonomically designed Diesel forklift’s operator compartment and familiar automotive layout enable the operator to work comfortably, reducing tiredness during handling operations.

The simplicity of the components and specification makes servicing quick and easy.

The use of proven, high quality, robust components, efficient filtration and excellent cooling result in reliable operation and lower wear and tear with this equipment, thus low service and maintenance cost.

Automated Vertical Storage and Retrieval systemVERTIMAG from Armes Maini With ever increasing land prices and high investments that go into building warehouses, the need for infrastructure offering greater productivity while saving space is paramount.

Managing your inventory in limited warehouse space can be a daunting task, especially when the challenges of systematic organization have not been met. Armes Maini offers Vertimag®, a fully automated modular vertical storage solution. Vertimag® gives total control on inventory storage and access, optimizes resource function, reduces loss and enhances your workflow.

Vertimag works on goods to man principle. It is an ideal solution for handling materials of every size, weight and dimensions. It has considerable vertical extension and as an option is designed to have more than one work station on the same machine.

n

ng i m

o o S

Co

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

D-204, Riddhi Siddhi Complex, Prem Nagar, Goregaon (w), Mum. - 400 062. Ph.: 022 60020157/59. Website: www.iscmindia.net

For subscriptions contact: info@iscmindia.net

Sheferd AD.indd 2

22-Apr-15 10:53:12 AM