draft presentation

Presented ByPresented By

Ravi VaidiswaranRavi Vaidiswaran

Strategic Management AssociatesStrategic Management Associates

13th August 201013th August 2010

Supply Chain Audit ReportSupply Chain Audit ReportOverall FindingsOverall Findings



Presentation AgendaPresentation Agenda Some Global Facts The Dynamics of Supply Chain Supply Chain Practices in India

Supply Chain Process for Inventory Management for Manufacturing Management for Outsourcing-Need or OptionCustomer-Supplier Involvement-Relevance for E- Supply ChainsSupply Chain Implementation-Strategic Model

for Supply Chain Framework for Recommendations

Some Global FactsSome Global Facts

GDP : Rs. 27.55 Lakh Crores*

Inventory tied up : Rs. 1.17 Lakh Crores

Logistics Cost : 14% of our GDP

1% Reduction in LC1% Reduction in LC : Rs. 27550 Crores: Rs. 27550 Crores

2% Reduction in LC2% Reduction in LC : Rs. 55100 Crores: Rs. 55100 Crores

* Economic Survey 2008-09* Economic Survey 2008-09



Logistics CostLogistics Cost

13.5281.5Taiwan

12.487.0Singapore

12.4468.7Korea

10.53996.2Japan

14.0460.0India

14.51237.1China Mainland

Asian Region

10-11393.0Australia

Logistics Cost as % of GDP

GDP (USD b)*Country

* World Competitiveness Year Book 2009



08.710445.6USA

14.4637.3Mexico

11.8729.3Canada

North American Region

12.21555.2UK

12.1654.0Spain

12.2418.8Netherlands

12.61186.0Italy

11.81987.0Germany

11.71419.3France

European Region

Logistics Cost as % of GDP

GDP (USD b)*Country

* World Competitiveness Year Book 2009

Logistics CostLogistics Cost



International Comparison of International Comparison of Customer OrientationCustomer Orientation

74.4357.7062.6269.8459.67USA

66.5054.0057.0058.5063.00Thailand

57.1447.1459.2948.5760.71South Korea

74.7668.4469.7863.1172.89Netherlands

72.2089.7693.1781.4692.68Japan

52.4341.0830.2734.0541.08India

75.8378.6188.0671.3992.50Germany

66.0945.5644.6466.9655.94France

66.4562.5062.1958.0668.13Canada

51.8339.1536.3456.6252.39Brazil

Managing Distribution

After-Sales Service

On-Time Delivery

Product Design

Product Quality

Parameters

Note: Companies are rated 0=poor to 100=excellent Strategic Management AssociatesStrategic Management Associates


Elements of Logistics costElements of Logistics cost

• TransportationTransportation 35% 35%

• InventoriesInventories 25% 25%

• LossesLosses 14% 14%

• PackagingPackaging 11% 11%

• Handling and Warehousing Handling and Warehousing 9% 9%

• Customers' shoppingCustomers' shopping 6% 6%



The Dynamics of the Supply ChainThe Dynamics of the Supply Chain

Relevance to Relevance to

Ord

er

Siz

e

Time

CustomerDemand

CustomerDemand

Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders

Production PlanProduction Plan



Sales Volume 120 M/cs per month

Internal Mfg 70 M/cs

External Mfg 50 M/cs

In case as per demand

Based on warehouse/stockyard M/c numbers

Present Planning ApproachPresent Planning Approach Characterized by Sequential, Decomposed, Slow

Sales & Distribution(Demand)

Best Efforts-150 M/cs per month-Domestic, say 40

Exports

Manufacturing(Capacity)

OK for 150 M/cs per month

Procurement(Material)

OK for 150 M/cs per month

CUSTOMER

Optimize to Mfg objectives

Optimize toLogistics obj

Optimize toSales & Mktg obj



Supply

Sources:plantsvendorsPorts-4 (3 o/s)

RegionalWarehouses:stocking Points-18 all India

Field Warehouses:stockingPoints-16-varies

Customers,demandcentersSinks-Nil

Production/purchase Costs-78%

Inventory &warehousing Costs-15%

Transportation Costs-UW

Inventory &warehousing Costs-PPC

Transportation Costs-5%



Operations Planning ApproachOperations Planning Approach Characterized by Sequential, Decomposed, Slow

How to optimise Supply ChainHow to optimise Supply Chainfrom Perspective…..from Perspective…..

• Global competition-New M/c Mfrs coming in like Komatsu, JCB, ACE Cranes with well informed market shares

• Well informed more powerful Customers-Globally.. • Customer Expectations-Good machines, Reliability,

Quality, After sales service, warranty etc• Shorter product life cycle –Have to increase production

qty by optimisation of processes cycles to meet increasing demand

• New, low-cost distribution channels-Get channel members at low costs

• Internet and E-Business strategies-Currently mostly manual processes, extensively use IT, SAP, ERP to integrate faster SCM processes Strategic Management AssociatesStrategic Management Associates


SCM Profile of competitor CompaniesSCM Profile of competitor Companies

JCB,Komatsu,ACE and L&TJCB,Komatsu,ACE and L&T

JCB38%

Komatsu10%

ACE33%

L&T19%



By SectorBy Sector

Private-All major competitors(77%)

Public Sector(5%) Semi Private

(18%)



Participation by Management LevelParticipation by Management Level

General analysis of SCM General analysis of SCM contribution in these 4 companiescontribution in these 4 companies

Vice President17%

Director/GM28%

Sr.Manager

25%

Manager16%

CEO/COO/CFO/President

14%



Business Objectives analysis of SCM contribution in Business Objectives analysis of SCM contribution in these 4 companiesthese 4 companies

We can use same scores for We can use same scores for

4.02Increase earning per share

4.27Deliver Highest Value to Shareholders

4.28Increase Return on Investment

4.37Increase turnover (sales)

4.46Maximize Profit

4.82Maximize Customer Satisfaction

Weighted Score for Importance

Overall Business Objectives



Supply Chain ObjectivesSupply Chain Objectives

We can use same scores for We can use same scores for

3.43Having Products in Stock

3.62Expanding Width/Depth of Distribution

3.64Reducing/Rationalise Supplier Base

3.68Reducing Warehouse Cost

3.96Reducing Transportation Cost

4.28Reducing Lead Time

4.33Reducing Order to Delivery Cycle Time

4.45Improving On-Time Delivery

4.52Reducing Inventory Cost

4.56Expanding Sales Revenue

4.93Enhancing Customer Service

Weighted ScoreSupply Chain Objectives



Critical SC Processes for Critical SC Processes for

0 1 2 3 4 5

Customer Service

Demand Management

Inventory Management

Order Processing/Fulfillment

Manufacturing

Product Development

Transportation

Distribution Management

Import Export Management

Promotion Planning

Warehousing

Criticality Score

Based on analysis of data-Ref pg 2a of excel sheet



Critical SCM Processes for

Inventory in Inventory in

Inventory Overall Industry Sector Averages [as number of days of sales] Average Lowers Highers Lowers Highers

Raw Material 33.41 1 120 CDs 25.0 Engg 42.2

Work in Progress 14.25 0.1 210 FMCG 4.4 Engg 20.7

Finished Goods 16.09 1 40 Auto 9.9 CDs 23.3

Goods in Transit 6.44 - 85 Auto 4.08 Elec 11.0

Accounts Receivables 46.51 2 145 FMCG 16Engg 72.0Accounts Payables 45 2 127 Elec 25 CDs 60.0

Inv. at CFAs/DCs 14.48 2 50 Elect 10 CDs 24.7

Inv. at Distributors 16.77 3 45 Elec 3.0 Engg 23.4

Inv. at Retailers 13.48 1 45 Chem 8.6 Auto 30.0



Manufacturing Management in Manufacturing Management in

What is the penetration level of Inventory Replenishment Processes?

Pull16%

Push84%



Logistics Cost in Logistics Cost in

Supply Chain Cost Type Overall Industry Sector Averages [as a % of gross sales] Average Lowers Highers LowersHighersCost of Material 52.92 15 90 CDs 35.5 Elect 69.5

Cost of Labour 8.90 0.51 70 CDs 4.9 Elect 12.9

Cost of Prod OH 11.78 0.5 40 Elect 3.5 Chem 12.1Storage Cost 3.52 0.16 12 Elect 0.8 Auto 5.2

Inbound Transp Cost 3.38 0.12 20 CDs 1.3Chem 4.0Outbound Transp Cost 3.38 0.12 20 Auto 1.8Chem 4.9Warehousing Cost 2.06 0.1 8 Elect 0.3 Engg 3.1

Sec/Ter Transp Cost 2.02 0.2 10 Auto 0.5 Engg 3.4

Distributor’s Margin 6.35 0.1 20 Elect 2.0 CDs 9.7



Order Fulfillment pattern in Order Fulfillment pattern in Based on last 2 years data analysisBased on last 2 years data analysis

Shipment Accuracy v/s OTOFR Matrix for Order Processing

29.7%Hopefuls

50.8%Leaders

17.6%Laggards

1.9%Hopeless

0 90 100

0

90

Timeliness

(On-time Order Fill Rate)

Co

mp

lete

nes

s

(Shi

pmen

t A

ccur

acy)



OutsourcingOutsourcing

Extent of outsourcingof supply chain activities in

0 10 20 30 40 50 60 70 80 90 100

Transportation

Warehousing

Manufacturing

Information Systems

Import/Export Mgmt

Procurement

Customer Service

Order Processing

Inventory Management

Percentage Number of Respondents

YesNo



OutsourcingOutsourcingWhat are the major reasons for

outsourcing of supply chain activities in -Based on technical survey data-Ref. pg. 16a of Excel report

Process Effectiveness24%

Lower Cost27%Lack of Internal

Capability

11%

Investment Reasons12%

Strategic Reasons26%



Customer-Supplier InvolvementCustomer-Supplier Involvement

What is the level of customer & supplierinvolvement in supply chain activities in -Based on technical survey

data-Ref pg. 17 of Excel report

Customer Supplier Involvement

1.501.802.102.402.703.003.303.60

1.50 1.80 2.10 2.40 2.70 3.00 3.30 3.60

Customer Involvement

Su

pp

lier

Invo

lve

me

nt

1

3

4

5

6

2

8

9 107

11

12

1 Import-Export Management

2 Warehousing Management

3 Merchandising

4 Distribution Management

5 Promotions Management

6 Inventory Management

7 Manufacturing (Planning)

8 Transportation Management

9 Order Processing/Fulfilment

10 Product Development

11 Settlement and Payment

12 Demand Management



e-Enablement of Supply Chainse-Enablement of Supply Chains

What is the usage pattern of IT Applications in based on technical survey data-Ref. pg. 18 of Excel report

0% 10% 20% 30% 40% 50% 60% 70%

Materials Accounting

ERP/MRPII

Sales & Distribution

CAD/Drafting

Shop Scheduling & Loading

Warehouse Management

Supply Chain Management

Process Control & Optimisation

Demand Management

Engineering Data Management

Manufacturing Execution System

Computer Aided Process Planning

% Respondents using it



Aligning Supply Chain Strategy with Aligning Supply Chain Strategy with Business Strategy in -Business Strategy in -Based on technical survey

data-Ref. pg. 19 of Excel report

26%Doers

27%Leaders

13%Laggards

34%Dreamers

Business Strategy

Su

pp

ly C

ha i

n S

trat

egy



Framework for Supply Chain Framework for Supply Chain

StrategyStrategy for for

Business Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

Strategic Management Associates13th August 2010

Aligning Supply Chain Strategy with Aligning Supply Chain Strategy with Business StrategyBusiness Strategy

Business Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

Business Strategy

Supply Chain Strategy



Supply Chains ImplementationSupply Chains ImplementationWhat are the benefits achieved by

supply chain implementation in -based on data analysis report

Measurable Indicators Extent of Improvement

1. Sales Revenue Increased 20.2%

2. Profits Increased 15.5%

3. Order to Delivery Cycle time Reduced 32.8%

4. Inventory Reduction

a. Raw Material 25.1%

b. WIP 38.7%

c. Finished Goods 32.1%

5. On Time Delivery Improved 33.4%

6. Customer Base Increased 27.7%



How to achieve the desired result?How to achieve the desired result?Supply Chain: A Paradigm ShiftSupply Chain: A Paradigm Shift

Companies will collaborate with SC partners and synchronised operations.

Technology will be key enabler for innovative SC strategy

SC restructured and reskilled to achieve the goal



Thank YouThank You


431, Sector-28, Faridabad431, Sector-28, Faridabad

References : Excel data working Report pages 1 to 36 References : Excel data working Report pages 1 to 36 attachedattached

Departmental Heads of all SCM processesDepartmental Heads of all SCM processes

External Links for Business-Suppliers, Stockyards, External Links for Business-Suppliers, Stockyards, Distribution networks and external manufacturing Distribution networks and external manufacturing facilitiesfacilities

draft presentation

Documents

supply chain framework

sales service

increase turnover sales

mcs external mfg

mcs ok

gdp australia393

lakh croreslogistics

gdp european region