imi opsessia
DESCRIPTION
imi opsessiaTRANSCRIPT
1
From the Editor's Desk
We are what we repeatedly do. Excellence, then, is not an act,
but a habit. – Aristotle
Welcome to the inaugural edition of “Opsessia”- the Biannual
Operations magazine of IMI. It gives us immense pleasure to
bring out this issue, which is dedicated to the world of Operations
management. This magazine is inspiredby the insightful
thoughts of highly intellectual professors and inquisitive students
studying across B-schools in India, thus blending experience and
new thinking from the future leaders.
The articles in this issue are on different aspects of Operations
Management and cover a myriad of topics like Build-Operate-
Transfer, Sales and Operations planning, Green Strategy, JIT,
Impact of GST on SCM, changing trends in Global SCM and
achieving operational excellence through Financial Instruments.
This is just a glimpse of what we aim to bring to you in the future. I
hope that “Opsessia” will help you gain more insight into major
developments in the field of Operations Management across the
globe.
Wishing you all an exciting reading experience.
Team Genesis.
Looking forward for to your feedback and suggestions at [email protected]
For more information on Genesis, the operations club of IMI visit our website
www.imigenesis.com
TEAM GENESIS
Senior Genesis Team
Ambuj
Atreya
Richa
Sonali
Vijish
Junior Genesis Team
Alisha
Anubhav
Jai Shivam
Mithilesh
Ratan
Shilpa
Shishir
Srikant
Sumant
Tarun
Opsessia
40
Genesis Room
Top
Line
(Left to
Rig
ht) : V
ijish, Ta
run
, Atre
ya, A
mb
uj, M
ithile
sh, R
ata
n, A
lisha
,B
otto
m Lin
e (Le
ft to R
igh
t) : Rich
a, S
on
ali, S
rikan
t, Sh
ishir, A
nu
bh
av, S
um
an
t, Sh
ilpa
No
t in th
e P
ic : Jai S
hiva
m
Opsessia
A Word from the Director General
Dear Friends,
It gives me immense pleasure to pen down my thoughts for the inaugural issue of
“Opsessia-obsessed with operations” magazine. This initiative taken by Team
Genesis, the Operations Club of IMI, will provide a forum for dissemination of ideas
and best practices in Operations Management.
Ever since its inception, International Management Institute (IMI) has been a centre
for nurturing the very best of the managerial talent in the country. To achieve this,
the Institute has taken a number of initiatives to groom future leaders who are value-
driven and yet conscious of the fact that to achieve sustainable organisational
growth, one cannot overlook the societal and environmental concerns. As part of these initiatives, students are
encouraged to come forward to implement ideas which can help them in exercising their managerial talent and at the
same time provide value addition to management education. The progress of IMI has been noteworthy, with its students
performing remarkably well in the corporate world.
I believe “Opsessia” is a platform where students can share their views and come up with novel ideas to contribute to the
all pervasive world of Operations Management. This will enhance the awareness regarding this subject and will enthuse
the readers to be part of Operations function of an organization. It is a manifestation of the students' creative ability and
their unfettered ambitions. Entirely a student-driven initiative, it displays the potential of young innovative minds that are
always searching for newer horizons to explore.
I wish the young, enterprising minds a bright and rewarding future.
Dr.Pritam Singh (Padma Shree)
Director General
International Management Institute
2 39
OpsessiaStrategy Room
3
Opsessia
Team Genesis, the Operations Club of IMI has taken the initiative to come up with the very first issue of “Opsessia” a magazine dedicated to the field of Operations Management. In today's dynamic global environment, operations management has assumed centre stage as every firm tries to achieve Operational excellence to reduce cost, improve quality and achieve efficient delivery.
This is the inaugural issue of a proposed Biannual Operations magazine. The Genesis team had held a competition calling for articles from the MBA student fraternity to contribute towards making of this inaugural edition of the magazine a success. The response was overwhelming and the quality of articles received was brilliant. However due to space constraints we have not been able to print all the received articles in our magazine. This inaugural issue contains the Top 8 articles which were meticulously selected by the Genesis team members assessing the quality of content and style of presentation.
The magazine contains articles and write-ups relevant to the field of Operations written by students from across the top business schools in India. Time and again it proves the enthusiasm of the students toward the field of Operations management and clearly emphasizes the importance of Operations Management in the current business scenario. This issue also contains some articles written by our distinguished faculty from the field of Operations Management and a few written by our Genesis club members.
I am glad to present to you this magazine and hope that you will have a pleasant reading experience as you go through its pages.
Pradip K Bhaumik,Professor, Quantitative Techniques and Operations Management & Former Acting DirectorInternational Management Institute.
A Word from the Prof P.K Bhaumik
Opsessia
38
Strategy Room
“The best CEOs I know are teachers, and at the core of what they teach is strategy”
--------------------------------------------------------------------- Michael Porter [Harvard Professor]
650 students....250 teams.... 38 top B-schools....Seven rounds........120 Hours..........and finally teams from IMI
and SPJMIR battled it out in a mind boggling game of strategy –Ranneeti, designed and executed by Genesis,
The Operations Club of IMI.It was a one of its kind online event that kicked off on 19th October and concluded th
on 4 of November. Ranneeti created much buzz in the B-school events arena and saw participation from top
B-schools like IIMA,IIMC,FMS,XLRI ,JBIMS,IIMK,NITIE,MICA,IIFT,IIMR and SJMSOMto name a few.
“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is
e v o l v e d ” - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - S u n T z u
The importance of strategy in business cannot be overemphasized.This was the driving force behind our
effortsto develop astrategy game, which is based on game theory. The event was an online simulation that
tested one's capabilities in areas like planning, futuristic thinking, creativity and patience. Each team had a
maximum of three members and had to place their warriors in the battlefield which was a 6 X 6 matrix
(provided in an excel file).The warriors included Snipers, Bombers, Commandersand Soldiers each with
different skill sets. It was an intensely interactive game that tested one's strategic skills through combats
between warriors. Initially teams were given a sum of money, and a pool of warriors.Teams had to recruit their
own army choosing from soldiers, snipers, bombers and commanders. With its sheer energy and twists lurking
at every corner, Ranneeti11' did manage to sweep the participants off their feet. The one team that survived till
last would be christened the 'Lord of Strategy'.
With each round, the difficulty level increased and so did the excitement. In theinitial two
rounds,Commanders and Bombers were the most powerful units, in thelater stages, Snipers and finally in the
knockout stages the Soldiers reigned supreme. Constraints were introduced in the form of walls inside the
battlefield in order to enhance the difficulty with each successive round. The idea was to give the players a feel
of real life warfare where not only rules but also the game changes. Real business world is dynamic and shoots
up new challenges, reverses the conventions and again brings them back and tests your strategic and intuitive
abilities.
The following is the list of colleges whomade it tothe top 16:
XLRI,SPJIMR,IMI,XIMB,IIM Calcutta,BIM Trichy,MDI,IIT Delhi and IIT Madras.
Eventually, team 'Chanakya' from SPJIMR emerged as deserving winners of a close fight against team
'Whistleblowers' from IMI and took the crown of 'Lord of Strategy' in the finals.
Ranneeti 2011Strategy
Opsessia
4
In this Issue
Faculty Room :Relevance of Operations Management to Management Education - 5
Club Room :India: An emerging face as a Global Supply Chain Management Hub - 7
Class Room :
Achieving Operational Excellence through Financial Instruments - 11
Build Operate Transfer- A new schema in Infrastructure Development - 18
“Going Green” Operational Strategy of European Airlines a lesson for the-
India's Airline Industry - 21
Impact of GST on Supply Chain Industry - 25
Role of Information Technology in Supply Chain - 28
JIT and supply chain disruptions - 31
Improvement of S&OP and its Synchronization with advanced functions-
A key to sustainable operations management - 33
ADAPT TO THRIVE Mass-Lean-Agile-RAM - 15
37
OpsessiaClass Room
Methods & Systems, Vol. 24, No. 3.pp.4-14.
David, A. (2007). Planning process particulars : Meeting your just-in-time customers' demand. APICS magazine.
Gips, J. (2002). Sales and operations planning across the supply chain. APICS International Conference Proceedings
Raekar, R.H. (2002). Marketing : a key collaboration for effective sales and operations planning. APICS International Conference Proceedings
Stahl, R.A. (1999), Sales And Operations Planning – A Fundamental That Still Works. APICS International Conference Proceedings
Wood, C.B., & Boyer, J.E. Jr. (2002). Sales and Operations Planning at Elkay Maufacturing: A Case Study. APICS International Conference Proceedings
Oliva, R., & Watson, N. (2006). Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning. Harvard Business Working Paper. No. 07-058
Mazel, J. (2009). New research tells how to put muscle into S&OP Process, Supply chain strategy
Williams, M.K., Combining CPFR with S&OP to attain optimum customer service. Williams supply chain group
Hymanson, J., Whitepaper on Enhancing Sales and Operations Planning with Forecasting Analytics and Business Intelligence
A Guide to CPFR Implementation. (2001, April). Report by Accenture, ECR Europe.
S&OP Process is a Strategic Driver for Improving Business Performance. (2008, December). Research Brief, Aberdeen Group.
S&OP's Impact on Global Supply Chain
Transformation. (2008, February). Research Brief, Aberdeen Group.McCarthy, T. and Golicic, S. (2002), “Implementing Collaborative Forecasting to Improve Supply Chain Performance,” International Journal of Physical Distribution & Logistics Management. 32:6, p. 431-45
Sneha RamtekeIIM Kozhikode
Akshay JadhaoIIM Kozhikode
5
OpsessiaFaculty Room
Relevance of Operations Management to Management Education
All activities which convert input resources into useful
outputs, either goods or services, are termed as
operations. It is obvious that operations would be
required in any business organization (or for that matter
any organization!) which intends to produce useful
products or services. Operations Management is taught in
B-schools worldwide as a core subject along with other
core subjects which cover Marketing, Finance and Human
Resources. Even though operations are required in service
organizations as much as they are in manufacturing
organizations, the syllabus for the core subject is often
inclined more towards manufacturing. The relevance of
studying Operations Management can be discussed both
at nation level and the firm level.
Nation Level
The importance of studying Operations Management as
part of management education can be appreciated
considering the role of Operations / Manufacturing in the
economy of any country. Manufacturing contributes to
about 15% of our GDP. Despite the fact that the service
sector is growing manufacturing has a crucial role to play
in the growth of the economy. The Industrial Production
Index is considered an important parameter for measuring
the economic growth of the country. A drop in Industrial
Production Index is always a matter of concern for our
Finance Minister.Needless to say, manufacturing holds the
key to economic growth of our country.
The role that manufacturing can play in the economy of
any country becomes obvious when we look at the two
countries: China and the USA. China is now universally
accepted as an economic superpower (apart from it being
a military superpower). The growth of China into such a
strong economy has largely been due to the fact that it has
developed excellence in manufacturing and now
dominates the world markets, be it developed economies
in the West or developing economies like India. Thus,
Operations Management has contributed to the rise of
China as much as it has been the reason for the fall of the
US economy. The USA allowed manufacturing to move out
to developing countries, specially to China resulting in the
current state of affairs. It not only made the US indebted to
China for billions of Dollars but also brought in the high
unemployment rate which is a major cause of concern for
President Barack Obama. In 2007 alone, USA lost 374,00
jobs based on goods producing industries
(source:www.chroniclesmagazine.org) .On the other
hand, China did everything it could to promote
manufacturing and exports in the country. It could attract
huge foreign direct investments and companies moved
their production base to China attracted by the low wages
and incentives provided by the Chinese government.As a
result, the balance of trade is skewed unfavorably
towards the US. If the American economy could do well by
merely focusing on services it would have done so.
Unfortunately, this is not the case. Growth of
manufacturing not only contributes directly to the
economy but also creates services, thus, indirectly
bringing about a growth in services sector too. If a factory
is set up for manufacturing a product it automatically
creates a demand for providing services like
transportation and warehousing. The US probably failed
to realize this. In India, the government has realized the
importance of manufacturing and formulated a
Manufacturing Policy for the country.
Firm LevelApart from the role of Operations Management at the level of economy of a country, its role at the level of business organizations is not difficult to understand. The relevance of studying Operations Management at firm level can be studies with respect to factors which are internal to the firm and those factors external to the firm. Internal to the firm: Michael Porter, in his Value Chain Model, has divided activities in business organizations into Primary and Secondary activities and he has included Operations among the Primary activities. Since Operations creates products or services it is actually the backbone of any business firm. It is the reason for existence for Finance, Marketing and Human Resources functions. It would be strange if the students of business management did not understand basic operations of a firm. Operations of a firm require huge investment both in terms of fixed costs as well as working capital. Understanding these operations and improving them can substantially affect the bottom line of a company. The concepts taught in Operations Management find application in other functions too. Take for example, the concept of process management. Processes exist in all departments of a firm, not only in Operations. A
Opsessia
36
Class Room
slicing and dicing, drilling down and across the wide
database to filter out the information and generate
the useful reports. These options are provided in
the BI tool. Visualizations in the dashboards makes
BI more useful tools for managers preparing for
S&OP meetings.
BI allows communicating and helping people; the
most important part of the S&OP. Business
intelligence empowers employees who are involved
in the S&OP process. It eventually suggests fewer
problems for S&OP interlock making it easier to
arrive at consensus during S&OP.
Framework for implementation of CPFR and BI in
combination with S&OP:The system with the S&OP can be improved greatly with the implementation of the CPFR and BI. Quite a few researches have been done on the synchronization of the CPFR and S&OP. At the same time synchronization of BI tool with these functions increases the efficiency of the system impressively. The suggested framework is as shown in figure.
CPFR schedules must be in sync with the monthly cycles of the S&OP meeting and demand-supply management. The demand planning for each customer segment should be taken into consideration using the CPFR collaboration with Retailers. POS data should form the basis of the forecasts. Business Intelligence tool should be implemented to collect the data (online servers). Functional divisions like marketing, operations, Demand Planning, etc. should use the same data obtained by BI system. The Finance Pre-S&OP should be carried out for the reconciliation purpose. The formal S&OP meeting and aggregate level demand representation will make the organization capable of generating the consensus demand plan which can be used for the further MRP (Material Resource) Planning Procedures.
Conclusion
S&OP is crucially important process for every
organization. Nearly every successful organization
follows it. But if it is not carried out properly and
hidden challenges are ignored then it becomes
difficult to achieve the desired results. So the
improvement of the S&OP process must
be continuous for the sustainable
operational management. At the same
time various functions that can be
integrated with S&OP for improvement
in the performance of the organization
must be combined and synchronized
with S&OP. This will make sure that with
the change in the technology the
organization is changing & is capable of
enhancing its S&OP process for better &
sustainable performance.
ReferencesBower, P. (2005). 12 Most Common Threats to Sales and Operations Planning Process. Journal of Business Forecasting
S & OP
Finance Pre S&OP
Sales Marketing Demand Planning
Product/
Brand Management
CPFR
Customer trends of POS Data representing
Demand
Demand Planner
Customer Segment 1
Demand Planner
Customer Segment 2
Demand Planner
Customer Segment n
Business Intelligence
Consensus Demand Plan
Figure. 3. Monthly Synchronized Schedule of S&OP & CPFR with the help of BI
35
OpsessiaClass Room
customer group have to participate in the joint
responsibility of S&OP so that the data collection
for demand management is uniform for a particular
segment with no variations and can be aggregated
to calculate the aggregate demand and
corresponding supply capacity at S&OP level as
shown in fig.1.
The study conducted
(Williams) on CPFR and
S&OP synchronization
suggests that in only 10
months, the forecast
accuracy was improved
from 27% to 70%. It
suggests that the
efficiency of the
organization increases
with this potent
combination of CPFR
and S&OP.
Optimization of Output using BI tool
Business intelligence/ Analytics collect the
information from all the parts of an organization
and allow top management executives to get the
required analysis reports using data mining.
Following features make BI a tool
that could be used by executives
involved in S&OP process for the
efficient use of data spread in the
organization by analyzing it.
Advantage of BI over ERP: Unlike
the occurrence of the different
number under the same heading
in ERP, BI assures that the data
used across the organization is
same. Importantly the use of
single value of a KPI or
component helps the organization
to reduce the conflicts during
S&OP. Multiple values in ERP may
have a negative effect on the improvement efforts
of S&OP by the organization.
Also ERP does not provide the options such as
Figure. 2. Using BI for S&OP and its improvement
Opsessia
6
good Finance Manager or a good Marketing Manager should also be a good process manager. However, senior people in Finance or Marketing may know a lot about their respective fields but are not very good at managing processes. Similarly, the concept of bottlenecks can be applied to improve the functioning of any department. Sadly enough, the application often remains limited to the Operations function where people are more aware of the concept. A third concept is quality management. Quality is not only required in the final product or service but also in the way bills are passed by Finance function or the way orders are processed by Marketing function.
External to the firm: Firms need to have a strategy to handle competition. An operations based strategy can help a firm to not only establish itself but also take competition head on. According to Hayes and Upton (1998) superior operations effectiveness based on capabilities that are embedded in the people or processes, becomes inherently difficult to imitate. Firstly, an operations based strategy is not very obvious to competitors for quite some time. Secondly, by the time the competitors come to know of the strategy the firm has already gone down the learning curve and developed capabilities which make imitation difficult. Thus, it provides sustained competitive advantage to the firm.
Upton and Hayes provide many examples how small companies have successfully taken on competition in their fieldsby having an operations based strategy. Two such prominent examples are those of South West Airlines and Wal Mart. South West Airlines began operations in 1971. With a clear operations strategy focused on customer service, gating operations and human resources the airlines developed superior operations and in 1992 it was the only American airlines which was making profit. Any attempt by competitors to imitate its operations based strategy failed. Similarly, Wal Mart became a public company in 1972 with just 30 stores. With an operations based strategy, it grew to about 650 stores in a little over ten years. It used computers to track sales and co-ordinate replenishments. Rival firm K Mart,which at one time was much larger than Wal Mart, attempted to imitate this strategybut failed.
Operations form an integral part of any firm. In fact, it is the very reason for other functions to exist in the business world. Finance, Marketing and Human Resource strategies are meant to compliment an Operations strategy and not vice versa. It is high time that our B-schools as well as the students studying in these schools realize the importance of this subject so that the country moves towards excellence in firm based operations which can fuel the growth of the economy of our country.
References1. Hayes, Robert H and Upton, David M
(1998), “Operations based strategy”, California Management Review, Volume 40, No. 4, pp. 8-25
2. www.chroniclesmagazine.org
Dr. SiddharthVarma
Professor, IMI
Specialization
Educational Qualifications
Interest Area
Faculty Profile
Quantitative Techniques & Operations Management
B. E, M Tech, MBA, Ph.D
Supply Chain Management, Technology Management
Professor SiddharthVarma did his B. E. in Mechanical
Engineering from the erstwhile University of Roorkee
(now IIT, Roorkee) in 1985. He did his M Tech from Indian
Institute of Technology, Delhi in 1987 and completed his
Masters in Business Administration from Asian
Institute of Technology, Bangkok in 1993. He obtained
his Ph D from IIT, Delhi in 2008 in the area of supply
chain management.
Faculty Room
Opsessia
34
Class Room
optimization.
3) S&OP document must be used for each and
every process requiring the data about
sales/operations or financial plans. It must
be used as a master document in the
organization. It should not be redundant or
substitutable.
4) Every employee in the organization must
participate towards the development of
S&OP if a specified process is supposed to
be done by him/her. Right people must
present right work at the right time with
clarity about their activities and roles.
5) Accurate data must be used or obtained by
using formatted data obtained from
shipping schedules, forecasted sales,
warehousing, production or from other
operational management processes in the
organization.
6) Use of collaborative platforms increasing the
frequency of the interaction between the
people to share the structured information
is necessary for success of S&OP and proper
maintenance of master data for getting
accurate output.
S&OP & other advanced functions and tools
With the advent of the technology and revolution in
distribution and logistics, Sales and Operation
Planning needs to be combined with other
application functions to improve the performance
of the organization in the view of the increasing
competition.
Synchronization with CPFR
The famous Collaborative Planning, Forecasting and
Replenishment (CPFR) concept used by Wal-Mart
(1995), P&G and others, is a function that has
potential to streamline the organizational
forecasting and eventually helping S&OP to increase
the clarity and performance through different ways.
In CPFR the burden of replenishment is on the
collaborative partnership of the customer and the
supplier. Thus, the retailer's point-of-sales data
(POS) data is used for forecasting. Promotions on
sales, exception items, major customer relationship
maintenance, etc. issues are handled collaboratively
& resolved. When it comes to organization of
supplier we can say that S&OP plays a major role in
breaking down internal barriers. Thus these two
functions can work simultaneously to increase the
Supply chain efficiency.
Synchronizing CPFR and S&OP activities will lead to
the sharing of information from both the functions
and input to each other for better performance.
The accurate forecasts using POS data and periodic
update about inventory from CPFR function is used
as input for the S&OP activities. The market trends
can be studied at CPFR end to use it as the indicator
of market conditions. The decisions taken at the
S&OP are then implemented at retailer levels like
promotions, operations management related
decisions, etc.
The monthly schedule of CPFR and S&OP must be
tightly coordinated and coherently maintained by
adhering them together. Week 1 activities of CPFR
activities must adhere to week 1 activities of S&OP
also Week 2 activities of CPFR activities must
adhere to week 2 activities of S&OP and so on. The
schedules of both functions must be aggressively
adhered to get efficient output.
The demand planners who are involved in the CPFR
process and dealing with different chains or
7
OpsessiaClub Room
India: An emerging face as a Global Supply Chain Management Hub
When it comes to producing products at low cost and
higher quality, it's a common notion for manufacturing
firms to think of Japan or China. While manufacturing
products, the three important aspects on which a plant
location is decided is the cost, quality and delivery. China
and Japan has proved their leadership in producing high
quality goods at a lower cost and maintaining a stringent
timeline. All this has been made possible through years of
research, fine tuning in Operations and Supply Chain
Management, through initiatives like TQM, Kaizen, Six
Sigma, Lean manufacturing and many other operational
excellence practices. As a result these countries have
emerged as a preferred destination for manufacturing
firms and have emerged as the leading exporters in the
world along with other developed nations like Germany,
USA and European Union. thIn 2010, India ranked 17 overall in total exports to the
thworld. However, India ranked 7 in the world for total
vehicle production in year 2010.
The prime reason for India being on the top of the charts in
Automobile production is the increasing demand for 2 and
4-wheelers in India. However traditionally in Automobile
sector India was never considered as an exporting country.
All the indigenous automobile manufacturers usually used
to cater to the domestic demand and designtheir
Operations and Supply Chain management accordingly.
However this scene is changing and that too rapidly. With
improvement in Infrastructure, favourable central and
state government policies and the opening up of the
economy has caused many firms to rethink their supply
chain management strategies. The following two articles
which appeared in the Economic Times on the same day rd(dated 3 Oct 2011) are the proof of the new supply chain
management strategies adopted by Global Automobile
manufacturer in India.
The New Operations Strategy
The automobile demand for 4-wheelers and commercial
vehicles like trucks and goods
carrier are increased manifold in
India. The Automobile industry in
India is one of the largest in the
world and is also one of the fastest
growing industry globally. India's
passenger car and commercial
vehicle manufacturingindustry is
the 7th largest in the world, with an
annual production of more than
3.7 million units in 2010*.
According to recent reports, India
is set to overtake Brazil to become
the sixth largest passenger vehicle
producer in the world, growing 16-
18 per cent to sell around three
million units in the course of 2011-
12*. In 2010, India emerged as
Asia's fourth largest exporter of
passenger cars, behind Japan,
South Korea, and Thailand.
With increase in domest ic
demand, global automobile
manufacturers are rethinking their
Supply chain strategy and are
s e a r c h i n g f o r i n n o v a t i v e
techniques to take advantage of
33
OpsessiaClass Room
Abstract:
Supply chain does not sustain only on the
coherence and synergies between the external
parties engaged in the value chain. The
understanding of the various department oriented
issues need to be considered to unlock the
potential of the organizational efficiency and
productivity. The intra-organizational balance
pertaining to the issues of the operations in the
organization can never be handled without the
effective integration and cross-functional teams
(Oliva, 2006). Sales and Operations Planning makes
it possible to unleash the organizational power of
handling the problems effectively for excellent
demand-supply management. A study done by
Aberdeen Group in 2008 suggests that the best in
class companies implementing S&OP, were having
2.5 or 6 times better KPIs than that of the other
companies. Paper uses concepts and small cases to
discuss how Sales and Operations Planning is a
fundamental that still works best (Stahl, 1999) and
can be greatly improved with the advanced
functions & tools like CPFR& BI.
Are you doing S&OP properly?
Nowadays, nearly every successful company
working with excellence in the Supply chain
management performs Sales and Operations
Planning (S&OP). S&OP is the single most critical
competitive weapon that can ensure profitability
with right selection of the channels and products
for the right customers. But often it is found that
the S&OP is not prepared or improved in the way it
should be. Sometimes it may be because of
inappropriate ways or improper choice of the tools
used to prepare S&OP making it more cumbersome
and laborious. The research (Joseph, 2009) shows
that 70% of the organizations will be changing their
technology and are on the verge of enhancing their
S&OP process in near future. It indicates that the
S&OP needs to be improved and enhanced
continuously and is necessary for the organization.
At the same time, the opportunities and threats
related to S&OP should not be overlooked.
The case Elkay Manufacturing (Cary Wood, 2002)
studies the adverse effects of competitive
environment in the market. The need for
improvement made the Elkay managers think about
the alternate ways to improve the organizational
performance in the market by increasing the
involvement of the top management. Finally it was
revealed that S&OP provided Elkay a “one-plan
process” which was the key for the success
revealing the important principles for S&OP, which
can be followed by an organization to strengthen
existing S&OP as follows-
1) Top management is the one who should
lead the S&OP implementation and
assessment. Employees in the organization
must be aware of S&OP & their roles.
Executive S&OP champion must be an
influential personality and must have
experience in demand or supply
management at higher level in the
organization.
2) Resource effectiveness must be based on
the multi SBU combination consisting of
supply chains with the focus on the profit
Improvement of S&OP and its Synchronization with advanced functions:A key to sustainable operations management
Opsessia
8
Club Room
9
OpsessiaClub Room
the Indian experience in automobile manufacturing and
favourable government policies by entering into JV with
Indian partners. With over 23 companies producing over
98 brands/models of passenger vehicles in India and 23
companies producing commercial vehicles in India, the
competition in Indian market is fierce.
As a result of such large number of brands coupled with
lower aggregate domestic demand (even though %
growth is higher) the demand of automobiles per brand
gets distributed, with domestic brands enjoying a higher
market share due to higher penetration and customer
confidence. For foreign brands to cater to the small but
ever growing customer demand, setting a small to
medium scale plant would be considered as a viable
option in a short run. However setting a small to medium
scale output plant to meet its current mediocre demand
for medium to h igh pr iced veh ic les would
jeopardisecompany's long term plans and objectives of
growth. On the contrary setting a large scale
manufacturing plant with large production capacity would
result in higher initial cost and excess production.
In such difficult situation, Operations Manager went
beyond the obvious and sought to take advantage of
liberal Indian Export policies and liberal import policies of
countries like those in Middle East, Africa, South East Asia
and South Asian regions. Companies like Nissan and VE
(Volvo-Eicher Motors JV) have setup their large scale
production plants in India to cater for future rise in
domestic demand for automobiles and anticipating
growth in domestic automobile market. At the same time,
the current excessfrom the production was exported to
the countries like those in Africa, Middle East, South Asia
regions. These companies have worked to develop India as
a supply chain management and export hub apart from
countries like Japan and China.
Opsessia
32
Class Room
suppliers")Clearly, the benefits provided by JIT outweigh its risks by a huge margin, so how can one think of eliminating JIT as a system? However, the current set up cannot continue and organizations need to relook at their operation. The reason lies in the history of globalization. Through globalization, organizations now could exploit an opportunity to manufacture in low cost regions at a fraction of the cost which they would have otherwise incurred. Supply chains were now stretched to enable organizations to source components from different vendors across the globe and assemble them at the very end. Very soon this created concentrated manufacturing hubs on the world Map, especially in case of components. E.g.: the Guangdong province in China is responsible for 80% of the world's production of basic electronic components. Similarly Hitachi Chemicals produces 70% of the slurry used by the entire world's chipmaker's to polish their wafers. A just in time approach combined with this globalization exposes organizations to catastrophic risks as can be seen during the recent times. We need to come up with a solution that could mitigate these risks and yet enable organizations to continue reaping these benefits.
Multi-sourcing
During the course of t ime, companies started misinterpreting the JIT philosophy of reducing the suppliers. Companies started the practice of having sole suppliers to achieve economies of scale and build stronger relationships with suppliers. However, this made them vulnerable to such shocks and took away their flexibility. This also led to what is known as reverse bullwhip effect. It has become highly imperative for such companies to increase the certainty in supply by maintaining two or more suppliers which is known as multi sourcing approach. Again, multi sourcing is a strategic decision where the location of two suppliers also matters a lot in such situations of calamities. In case of Japan crisis, some companies with multiple suppliers also failed as both of the suppliers belonged to the same geographic region. De-risking can be done by having supplies from different geographic regions. Honda is a good example of such approach as they have already started expanding their base in India.
Product Configurations and marketing
With a move towards modularization and mass customization, organizations are now capable of offering a variety of product configurations without making huge changes to their operations. Dynamic pricing and flexible product portfolios could help companies such disruptions in certain cases. However, this approach finds limitations in case of critical components and products.
Emergency Stocks
It is necessary for companies to start reconsidering their emergency stocks. It is necessary to decouple supply chains at certain levels. Consider the case of emergency stocks of medicines in case of an epidemic. A pharmaceutical company is expected to ramp up its supplies by several times to be able to contain an epidemic outbreak. However, the government maintains a safety stock to ensure that enough medicines are available during this ramp up. Organizations too must start thinking in terms of these emergency stocks at least in case of certain critical components.
So, rather than having rigid supply chain following classical JIT approach, organizations need to come up with innovative customizations in JIT to counter such disruptions in supply chain.
Sandeep Borkar SJMSOM , IIT Bombay
Gaurav KawaleSJMSOM , IIT Bombay
Opsessia
10
Moving forward we would expect to see many such
examples from other sectors of Industry, where
Operations Managers would consider India as a missing
link in their Global Supply Chain management and India
would emerge a leading Exporter of the world.
By Mithilesh Borgaonkar
He has completed his BE Electronics, from Sardar Patel College of Engineering, Mumbai
University. He has a work experience of 27 months with MindTree Ltd. after that he
stjoined IMI & is currently in 1 year PGDM, IMI, Delhi. He is also a member of Genesis, the
operations club of IMI.
References
#
*
http://en.wikipedia.org/wiki/Automotive_industry_in_India
http://en.wikipedia.org/wiki/Automotive_industry
Manufacturer Model
Indian Automotive Companies
Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster
Hindustan Motors Ambassador
ICML Rhino Rx
Mahindra Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500
Premier Automobiles Limited Sigma, RiO
San Motors Storm
Tata Motors Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria
Foreign Automotive Companies
BMW India 3 Series, 5 Series, X1, X3.
Fiat India
Grande Punto,
Linea
Ford India
Figo,
Fiesta Classic,
Fiesta,
Endeavour.
Chevrolet Spark,
Beat,
Aveo U-VA,
Aveo,
Optra,
Cruze,
Tavera
Honda Siel Brio,
Jazz,
City,
Civic,
Accord.
Hyundai Motor India
Eon,
Santro,
i10,
i20,
Accent,
Verna,
Sonata Transform.
Land Rover
Freelander 2
Maruti Suzuki 800,
Alto,
WagonR,
Estilo,
A-star,
Ritz,
Swift,
Swift DZire,
SX4,
Omni,
Eeco,
Gypsy
Mercedes-Benz India C-Class,
E-Class
Mitsubishi
Lancer,
Lancer Cedia,
Pajero
Nissan Motor India
Micra, Sunny
Renault India
Fluence,
Koleos
Toyota Kirloskar
Etios Liva
Etios,
Corolla Altis,
Innova,
Fortuner
Audi India
A4,
A6,
Q5
Škoda Auto India
Fabia,
Laura,
Superb,
Yeti
Volkswagen India
Polo,
Vento,
Jetta,
Passat
Club Room
31
OpsessiaClass Room
The recent natural calamities in the Asia Pacific have put up
a question mark on the very validity of JIT. Organizations
who swore by JIT for more than three decades, reaped
immense benefits from it are now questioning the
applicability and future of JIT. Is JIT the real reason for these
losses? Should an approach that has proven immensely
profitable in the past be done away with? Is JIT past its due-
date?
One of the biggest victims of the recent catastrophe in the
ASEAN countries was automotive industry - which has JIT
imbibed in its DNA.
All these losses have forced
companies to rethink on their
A Hitachi factory north of Tokyo that
makes 60% of the world's supply of airflow sensors was shut
down. This caused General Motors to shut a plant in
Shreveport, Louisiana for a week and Peugeot-Citroen to cut
back production at most of its European plants. Nissan also
encountered a similar problem when it had to cut back
production by almost 12% due to stock-out of engines.
Similar story was repeated due to Thailand floods which are a
major supplier of auto ancillary. Frost and Sullivan report
gives a picture of the impact of floods on different OEMs.
The electronics industry
hasn't been an exception to
this case. Dell is facing
shortages in HDDs supplied
by Thailand manufacturers.
Apple and Lenovo had
anxious moments in 2010
when uncertainty loomed
over supply of DRAMs for
their computers.
JIT methods followed currently. Some analysts are even
speculating it to be the end of road for JIT. However, before
making any decision or reaching any conclusion one should
go down to the very fundamentals of JIT, why did it come into
being, how it made so big?
Apart from this, JIT came with
numerous benefits like reduction in setup time, elimination
of waste, cut down in production times and more importantly
better supplier relationships. Companies started seeing JIT
as a competitive advantage.
JIT has been there since more than three decades now, much
before the advent of globalization. It is a time proven system
that enables an organisation to reap immediate benefits of its
actions. Back in the early 80's, a number of American firms
started adopting JIT manufacturing in an attempt to reshape
their manufacturing environment. An immediate outcome of
order based or pull based systems was reduction in
inventories and saved costs. This further encouraged other
organizations to adopt JIT.
In the early 90's development of EDI further improved communication between organizations making supply chains more agile and more responsive. IT tools started becoming more powerful, making supply chains more agile and efficient. In modern times, as product demand lifecycles started shrinking, just in time offered a viable alternative that could significantly reduce financial risk by postponing final assembly of the components as well as reducing inventory levels. DELL's supply chain which emerged during this time was looked upon for its flexibility and efficiency.
Just to have a glimpse of the benefits that the automotive
sector reaped because of JIT implementation, we can look at
the following exhibit.
Measures of inventory management performance used in the
analysis
(Source: John F. Kros, Mauro Falasca, S. Scott Nadler, (2006) "Impact of just-in-time inventory systems on OEM
JIT and supply chain disruptions
Opsessia
30
Class Room
to reduce their inventory stock significantly. It has
helped in achieving a continuous and smooth flow
between manufacturers' deliveries and store
replenishment without buffer stock at Retail distribution
center.
For a successful cross docking these things are essential-
1. Supply chain partners must be linked with
advanced information systems for coordination
2. A fast and responsive transportation system
3. Forecasts should be much accurate, requiring
the sharing of information
B. RFID system
RFID system consists of readers and tags capable of
storing and transmitting information, a RFID tag is
designed itself as a microchip with an antenna. This tag
is labeled to the products which are going to be shipped.
When the tag comes within the close range of the
reader, the data is captured and redirected to the
workstation computer.
RFID technology has been instrumental in improving
supply chain visibility and reducing theft and
counterfeiting.
Tracking the products through supply chain has reduced
the uncertainty risk and bullwhip effect, improved
collaboration among partners, fewer stock-out
situations, reduced inventory stocks and ultimately
increased the profit by reducing cost.
Reference
1. Srivastava/radio frequency identification
technology: The next revolution in SCM
2. Rockfordconsulting group university/ mass
customization
3. Anand Subramanyam/advance planning and
scheduling
Umesh C.S. Arya IIM -Kozhikode
11
OpsessiaClass Room
In an open economy, production firms are highly
susceptible to the variation in cost of raw materials and
other direct costs. With inflation rate soaring at 9-10% per
annum, it is a difficult task for Indian production firms to
maintain a stable input cost. As a result, there is constant
pressure on the margins of the firms. Achieving a constant
supply of raw materials over a period of time at a stable
cost is the most difficult task for purchasing managers.
Advanced tools like Inventory Management, Warehousing
or Price Forecasting may be used to control prices of inputs
upto a certain level. However even all these methods do
not ensure 100% surety of providing raw materials and
direct inputs at a constant price.
In such an environment, Operations Manager has very few
options from their field of specialisation to keep the
margins stable. Capital Intensive methods may be
employed to achieve economies of scale and reduce the
fixed cost. However the initial cash outlays would take the
cash out of the business making the firm more susceptible
to price fluctuations. Therefore it becomes a mammoth
task for the Operations Manager to seek methods or make
provisions for increase in the direct cost involved in
production.
Historically it has been observed that Indian firms spend
on average 7-9% of the selling price on transportation cost
as against 2.5% in USA. In case of heavy materials like Steel
or Iron, the transportation cost can be as high as 33%. The
reason for such high cost can be attributed to many factors
like state taxes, Toll tax, lack of proper infrastructure like
highways or speedways, government policies etc. The
implication of such high proportion of transportation cost
in the final price is that, a small increase in transportation
cost can cause an increase in overall cost of the product
and a large decrease in margin. Consider an example
where selling price of a product is Rs.100 with a planned
profit margin of 10%. Raw material and direct and indirect
cost would be around 80% of selling price and
transportation cost around 10% in Indian context.
Take a hypothetical situation in which the petrol and diesel
price have gone up by 50% over a period of time (as it has
happened over last few years in India). As a result the
transportation cost would increase by 50%. Even the cost
of direct and indirect materials would rise as a result of rise
in transportation cost to the raw material supplying firm.
Considering that 10% of the price is spent on
transportation by the raw material supplying firm, a 50%
increase in petrol price would lead to 5% increase in cost of
direct and indirect material. Thus with 50% increase in
petrol price, there is 75% decrease in margin of the firm if
selling price is kept constant.
If Operations Manager wants to respond to this huge
decrease in margins, he may have to increase the selling
price or reduce cost under other heads by some way. If he
resorts to increase in selling price and if there are too many
other competitors offering similar product and at similar
price, the demand for the product would go down further
adding to downward pressure not only to profits, but also
the Topline. If Operations Manager decides to reduce the
cost of raw materials, it can be achieved through three
ways
- By reducing the quality of raw materials thereby
compromising the entire product quality OR
- By further negotiating prices from suppliers. OR
- Looking for alternative materials which could be
used as raw materials. However these may involve
increased R&D cost and a complete process re-
engineering which could be costly and adding
higher initial outlays. OR Combination of any of
them Thus just by rise in petrol price, the
company's margin is jeopardised. However with inflation
Achieving Operational Excellence through Financial Instruments
Head % of selling price Actual Amount Selling price 100% Rs 100 Direct material 40% Rs 40 Indirect material 10% Rs 10 Labour (both direct and indirect) 20% Rs 20 Miscellaneous cost 10% Rs 10 Transportation cost 10% Rs 10 Margin 10% Rs 10
Opsessia
12
Class Room
However with inflation not only the petrol price, but also
the prices of all the goods and services (labour) goes up
which may put extreme pressures on the firm to
maintain margins at a constant selling price.
As the options for Operations manager are few and
difficult, is there any other easier way in which firms
can protect their margins without having to bother
about the rising cost of inputs?
Yes! There is a way to protect margins without
controlling actual input cost. But for this Operation
Managers have to think out of the field of Operations
management and enter into a world of speculation and
hedging. Operations manager can use financial
instruments like options and futures as a hedging tool to
reduce or at minimum to maintain the input cost and
thus maintain margins.
A brief overview about Futures and Options *
Futures
A 'Future' is a contract to buy or sell the underlying asset
for a specific price at a pre-determined time. If you buy a
futures contract, it means that you promise to pay the
price of the asset at a specified time. If you sell a future,
you effectively make a promise to transfer the asset to
the buyer of the future at a specified price at a particular
time. Every futures contract has the following features:
· Buyer
· Seller
· Price
· Expiry
Some of the most popular assets on which futures
contracts are available are equity stocks, indices,
commodities and currency. The difference between the
price of the underlying asset in the spot market and the
futures market is called 'Basis'. (As 'spot market' is a
market for immediate delivery) The basis is usually
negative, which means that the price of the asset in the
futures market is more than the price in the spot market.
This is because of the interest cost, storage cost, insurance
premium etc., That is, if you buy the asset in the spot
market, you will be incurring all these expenses, which are
not needed if you buy a futures contract.
Options
Options contracts are instruments that give the holder of
the instrument the right to buy or sell the underlying asset
at a predetermined price. An option can be a 'call' option
or a 'put' option.
A call option gives the buyer, the right to buy the asset at a
given price. This 'given price' is called 'strike price'. It
should be noted that while the holder of the call option
has a right to demand sale of asset from the seller, the
seller has only the obligation and not the right. For eg: if
the buyer wants to buy the asset, the seller has to sell it. He
does not have a right.
Similarly a 'put' option gives the buyer a right to sell the
asset at the 'strike price' to the buyer. Here the buyer has
the right to sell and the seller has the obligation to buy.
So in any options contract, the right to exercise the option
is vested with the buyer of the contract. The seller of the
contract has only the obligation and no right. As the seller
of the contract bears the obligation, he is paid a price
called as 'premium'. Therefore the price that is paid for
buying an option contract is called as premium.
The buyer of a call option will not exercise his option (to
buy) if, on expiry, the price of the asset in the spot market is
less than the strike price of the call. For example: Vikas
Head % of selling price Increase in cost % New Amount Selling price 100% 0% Rs 100 Direct material 40% 5% Rs 42 Indirect material 10% 5% Rs 10.5 Labour (both direct and indirect) 20% 0% Rs 20 Miscellaneous cost 10% 0% Rs 10 Transportation cost 10% 50% Rs 15 Margin 10% (75%) Rs 2.5
29
OpsessiaClass Room
Value stream consists of the value-adding activities
required to design, order, and provide a product from
concept to launch, order to delivery, and raw materials
to customers. Value stream contains several mapping
tools which are named as waste visualization tools. A
company can reduce all 7 kinds of wastes by using these
value stream mapping tools.
B. Mass customization
Mass Customization is an operational strategy with
extensive use of information technology tools and
applications which are focused on velocity and
tractability in a make-to-order process of operation,
with the aim of producing large quantities with
minimal changeovers and interruptions. Mass
Customization products are standard products,
providing a company a competitive edge by having
the capability to manufacture specialized or custom
products at the speed, volume, cost, and quality of
standard products.
Mass Customization is different from lean system;
lean system focuses on repetitive manufacturing on
the make to stock process of operation. Mass
customization is oriented towards high-volume,
product mix, adding velocity and flexibility in the
production process. It relates to environments
where a large degree of customized, or specialized
orders, offer a competitive advantage to the
company.
C. Advance planning and scheduling (APS)
An enterprise planning system utilizes planning and
scheduling techniques that consider a wide range of
constraints to produce and optimize plans based on
mathematical modeling under demand and supply
limitations and perform finite scheduling by
analytical tools to come up with a realistic plan. It is
flexible and integrated with implications of
alternative options so that the execution of plan
becomes easier and supportive to the real time
decisions.
It involves advanced information technology
knowledge, programming techniques like linear and
dynamic programming and heuristic and fuzzy based
techniques for optimal solutions.
The core benefits of APS are-
1. Increase accuracy of supply chain
performance,
2. Operate as a real-time system
3. Increases utilization of resources,
4. Enhance efficiency of asset deployment
IT applications and integration with Supply chainIT applications with integration of core supply
chain activities are playing major role in supply
chain management. Development of various
tools and software system for warehousing,
customer relationship management, material
planning and forecasting, Resource planning,
Tracking, Customer data collection has
tremendously changed the managing style of
supply chain of organization.
[Image Source:
www.tompkinsinc.com/systems/default.asp]
A. Cross docking and Vender Management
Inventory
Cross-docking is a technique whereby venders are able
Opsessia
28
Class Room
Supply chain: A chain of supplier and customer'Flow of products from suppliers to customers and flow
of information from customer to supplier' this is what
we call as supply chain. Whenever we talk about
suppliers and customers, we incline to think about
supply and demand. We can say Supply chain is a
complex and dynamic supply and demand network. The
word “dynamic” becomes important here due to several
reasons.
[Picture: Circles A, B…, E are points where they act as
supplier for later circle and customer for earlier circle]
Information Technology and Supply Chain network
optimization
Optimization of supply chain network has become
resurgent because of the kind of tools and technology
available these days. Existing Information and
communication tools can model any complex network
much better than ever before. In recent times,
companies are facing problems not in the designing of
the network but in the optimization of networks for cost
minimization, efficiency and efficacy. This neck to neck
competition has compelled companies to refine and fine
tune their past ad-hoc network.
To optimize a network, some of the critical steps to be
taken are:
1. Sources of supply need to square
2. Customer contracts and service levels to be
reviewed
3. Product mix should be optimized
4. Location, efficiency and duplication of facilities
needs to be addressed
5. Software and technology tools being used
needs to be addressed
Trends in Supply Chain management with engrossment of IT
A. Lean system and Value Stream
Elimination of waste and concept of JIT (Just in time)
comes into picture by changing the style of supply chain
management.
Lean principles focus on creating value by specifying
value added activities from the perspectives of the end
customer as well as the company.
Values are determined by:
1. Identifying all the steps
required to create value
2. Mapping the value
stream
3. Challenging every step
by repeated probing
4. Lining up value, creating
steps so they occur in rapid
sequence
5. Creating flow with
capable, available, and
adequate processes
6. Pulling materials, parts, products, and
information from customers
7. Continuously improving to reduce and eliminate
waste
Role of Information Technology in Supply Chain
13
OpsessiaClass Room
bought a call at a strike price of Rs 500. On expiry the price
of the asset is Rs 450. Vikas will not exercise his call.
Because he can buy the same asset from the market at Rs
450, rather than paying Rs 500 to the seller of the option.
However if the price of asset on expiry is more than Rs 500
(say Rs 600), Vikas can exercise his call option and buy the
asset worth Rs 600 at Rs 500 and thus earn a discount of Rs
100 if the asset was purchased at market price.
The buyer of a put option will not exercise his option (to
sell) if, on expiry, the price of the asset in the spot market is
more than the strike price of the call. For e.g.: Sharad
bought a put at a strike price of Rs 600. On expiry the price
of the asset is Rs 619. Sharad will not exercise his put
option. Because he can sell the same asset in the market at
Rs 619, rather than giving it to the seller of the put option
for Rs 600. On the contrary if the price on expiry is less than
Rs 600 (say Rs 550), Sharad can sell the asset at Rs 600 and
earn a profit of Rs 50 if the asset was sold at market price
Hedging and Operations Management
With the use of Futures and Options, Operations manager
can hedge against future probable rise in input cost by
trading in Options and futures of the related commodities
which go as an input in production cost. Even Operations
managers can trade in futures and Options of Crude oil in
commodity market to provide a cushion for effect of
petrol/ diesel price rise on transportation cost.
If Operations Manager expects a rise in cost of certain raw
materials, he can use futures and Option to negotiate a
price for future uncertain environment and control the
input cost for production. It will also help to reduce
inventory holding and storing cost as the firm may longer
need to have huge pile of inventory to cushion itself from
external uncertainties. Apart from trading on
commodities which are used as raw materials, it would be
wise for the Operations Manager to also trade in Crude Oil,
as it will help provide cushion for transportation cost in
case of oil price rise.
In many cases, firms do not directly buy raw materials
which are traded on Commodity exchange, but buy a
certain processed good from other industry as raw
materials. For example plastic polymer is not traded on the
commodity exchange. However Plastic product
manufacturing firms (say firm A) using plastic polymer as a
raw material in production of Plastic goods, can hedge on
crude Oil which is the major ingredient used to produce
plastic polymer. Thus as crude oil price rises, with a certain
market delay (cycle time), the price of polymer will go up.
However though many industries are immune to
temporary shocks due to their large inventories, long
OpsessiaClass Room
increase. Some part of these cost reductions will be
passed on to the customers and there by impacting the
demand for the product.
Automation: In addition to the inefficiency of the existing
distribution network, Indian logistics industry is highly
fragmented resulting in extreme competition and low
margins. Due to the small size, using any ERP solutions for
effective demand prediction would be costly affair. Hence,
most of the small & medium businesses have stayed away
from technology implementations. This impact of
inefficiency and cost burden is passed to end consumer,
either in terms of quality; SLAs or in terms of cost. With
GST, the number of warehouses will be reduced and the
suppliers would be able to think of using automation
which will deliver efficient operations and cost benefits.
Service levels: In the distribution network, service levels
will be specified in terms of number of days required to
deliver an order. Generally accepted norm is 2 days and to
meet this service level, warehouses are ensured to be
within 600Kms of distance from demand centres. Before
the introduction of GST, a demand centre very remote in a
state 'A' which is not within the acceptable distance to
meet the service level could not be served in time by the
warehouse in state A(see the figure). Because of CST, that
particular city cannot be served by the warehouse in state
'B' even though it is very near. This leads to sacrificing the
service levels at some places. With GST, this problem can
be resolved and that remote city can be served by
warehouse in the adjacent state and meet the service
levels.
Overall, introduction of GST would impact the supply
chain industry in a positive way and the organizations
which change themselves to the new structure very
quickly will have competitive advantage. Especially this is a
major opportunity for 3PL firms to gain early market and
establish themselves.
References:
1. Class notes of Logistics Management on 25-10-
2011, an elective by Prof G. Raghuram, Public
systems group, IIM Ahmedabad\
2.http://www.infosysblogs.com/logistics/2010/11/gs
t_impact_on_logistics_indust.html
About the authors:
This article is written by P. Babu Ravi Kumar,
Ravi Kumar Yadavalli & Ajay Miryala. The three
authors of this article are the second year
students of IIM Ahmedabad and have written
this article based on some class notes of an
elective called Logistics Management and few
simulation games.
OpsessiaClass Room
lasting price shocks can change the price of the
final product. In such case (long lasting price
shock) firm 'A' which uses plastic polymer
a s a ra w mater
ial can
succ
ess
fully
u s e
Options and f u t u r e s
to nullify the effect of increase in raw
material prices.
From the above chart, it is surprising to see
that the margins of the plastic product
manufacturing firm hedging against
petroleum prices have in-fact increased
with the increase in oil prices after period T0.
Oil forms an important component in
manufacturing polymer used in plastic. However
the firm producing polymer passes on this cost to plastic
good manufacturer after time T1. This T1-T0 is the cycle
time of inventory replenishment for the polymer
manufacturer. The price of actual polymer used to
produce plastic goods increases after time T2. The time
T2-T1 is the inventory replenishment time of the plastic
product manufacturer. However because of hedging, the
plastic manufacturer had the instantaneous advantage of
rise in crude price in the future/options market, which
increases the margins of plastic good manufacturer (firm
A) after T0. However the effect of increased margin was
nullified after T2, when the inputs cost increased. Thus
the Operations Manager could control the price of raw
materials used in processing and in addition was able to
reap temporary benefits of oil price rise by hedging.
Thus financial instruments when used for Operations
Planning and management can prove as a perfect tool
for cost optimization and margin maintenance.
The field of Operations Management and the experts in
the Operations Management should not just restrict their
focus on improving Operations process to control cost, but
also on allied branches like Finance and Marketing which
could provide important insights to Operations Manager
to help the firm sail through tough times through a
symbiotic amalgamation of tools of Operations
Management, Financial Management and other branches
of management.
References:
Financial Management
Marketing Management
HRM &other alliedbranches
OperationsManagement
Mohit KheraPGDM 2011-13IMI, New Delhi
·*http://www.rediff.com/money/2007/aug/01cspec.htm
14 27
Opsessia
26
Class Room
profitable if secondary shipping cost is more than primary
shipping cost.
With 28 states and 7 union territories in India, that
accounts to 25-40 small warehouses (depending on trade
off explained above and scale of operations) instead of 6-8
large warehouses which would be needed for geography
of this size. For some manufacturers with countrywide
operations, the warehouses are as high as 55 – 60 in
number.
Introduction to GST
From the newly proposed tax structure (GST) which treats
goods and services alike, only the inputs that affect supply
chain are reproduced here. GST is a comprehensive value
added tax on goods and services where the tax is levied on
'value added' at each stage of supply chain and provides
seamless input tax credit throughout the supply chain.
GST does not distinguish between goods and services and
the tax is collected at the point of consumption. Same
taxable value base for computing Central and State GST
hence no cascading impact of tax. There is no cascading
effect of tax on cost under GST and the tax incidence is fully
transparent. Hence the present taxable events such as
“Manufacture” in case of Central Excise and “Sale” in case
of VAT or CST will lose relevance.
Changes in supply chain due to GST
Under the tax structure proposed by GST, the tax is levied
only at the point of sale irrespective of whether it is inter-
state sale or intra-state and both the state and central
taxes are collected on the same base. The final tax on a
product would be the same, irrespective of the structure
or location of its production, procurement of inputs and
the nature and complexity of the distribution chain. This
primarily eliminates the need for having warehouses in
different states. Hence the supply chain would be
undergoing a drastic shift towards re-aligning/merging
the smaller warehouses to most productive and logical
locations - without having to think of tax burden.
With GST, the decision of where to setup the warehouse
will be guided by the distance between the manufacturing
unit & demand centres, service levels to be satisfied,
primary shipping costs, warehouse costs and secondary
shipping costs. As shown in the below figure, the primary
shipping
cost is the cost of shipping goods from manufacturing unit
to the warehouse where the secondary shipping cost is the
cost of shipping from warehouse to the retailer.
Distribution network should be designed in such a way
that, the sum of primary shipping cost, inventory cost and
secondary shipping cost should not exceed direct shipping
cost from supplier to retailer. If a warehouse is shipping to
multiple retailers, then the weighted average cost at that
warehouse should be minimized to get the optimum
distribution network. In general, the primary shipping cost
per unit is less than the secondary shipping cost per unit
because of the good quality of road transport
infrastructure between cities and the economies of scale.
In general, there should be a warehouse within 600Kms of
any demand centre (city) to meet the service level of
delivery within two days of order (industry norm).
Impact of GST
GST would force the suppliers to optimize the supply chain
and gain cost advantage. The optimization would impact
many areas and few of them are discussed here.
Cost reduction: Due to the optimization of distribution
network, the overall shipping cost of the product would be
reduced and the profit margins of the supplier would
15
OpsessiaClass Room
Making the right product at the right time and at
the right price requires adaptable manufacturing
operations management.With success in manufacturing, indeed even survival has
become increasingly difficult. Competition has intensified
from a national arena to a global scale. Product life cycles
have shrunk, yet there is an escalating requirement to
satisfy the specific and individual needs of customers.
Hence a need for Agile Manufacturing is on the cards.
Thus where once a manufacturer's success could be
measured by their ability to cost effectively produce a
single product; success now seems to be measured in
terms of flexibility, agility and versatility. That is, by the
ability to handle continuous improvements and change.
Consequently the changes in markets, customer
requirements technology have become the competition
criteria, and are now the critical factors in determining
manufacturing success. These raid environmental
changes have forced companies to improve their
manufacturing performance in conditions of increasing
uncertainty. Significantly such changes are occurring
faster and more unexpectedly than ever before. An
enterprise is confronted with a continuously changing and
unpredictable environment. Management has responded
to these competitive environmental pressures, in
particular to ensuing uncertainty and volatility by
developing new approaches, concept and methods. As
Sharp et al. (1999) put it, “there are many manufacturing
panaceas” Research by Womack et al. (1990), has
demonstrated that there are many different views about
the ways companies can improve their manufacturing
function to enhance their competitive advantage. Yet,
despite the resultant variety in manufacturing research
some recognizable tendencies are emerging. For example,
in production systems, rigid manufacturing systems are
changing to flexible manufacturing to improve the
system's ability to respond to consumers' needs. In
organization structures, large multi-level organization
structures have been reduced to single level network
structures. Concurrent engineering and virtual have been
introduced. In computer management, single task
applications have been transformed into computer
integrated manufacturing systems (CIMS). The driver of
these changes is the unrelenting evolution of competition.
Competitive advantage is soon lost and newer, sharer
techniques and technologies are honed to provide a new
competitive edge.
Real Agile Manufacturing
It is the strategic process of responding to the
competitive environment of continuous and
unpredictable change by reacting quickly and effectively
to changing markets. It takes multiple winners as an
objective, integration as the means with IT as an
essential condition and core competency as the key.
Agility is driven by competition; fragmentation of mass
markets; cooperative production relationship; evolving
customer expectations and increasing social pressures.
The core of any change includes consumer, competitor,
technology and resources. Accordingly Agile
Manufacturing has been defined in terms of the agile
enterprise, Products, workforce, capabilities and he
environment which gives impetus to the development of
the agile paradigm. The principal elements of the
definitions presented can be summarized as follows.
· Response to change and uncertainty
· Building core competencies
· Supply highly customized products
· Synthesis of diverse technologies
· Intra enterprise and inter enterprise integration
Agile manufacturing embodies the ability to cope with
change by the application of partners' core competencies
to supply customized products. It requires the synthesis of
diverse technologies within an integrated system.
Agile manufacturing is strategic processing in that it must
be deeply incorporated in the organizations development.
However different firms will vary in how they may
strategically respond to the changing business
environment. One consequence of this is that they may
use different levels of agility. From our synthesis of the
elements of agility we can recognize that here are three
distinctive levels of agility, which can be described as
elemental, micro-agile and macro-agile.
ADAPT TO THRIVE Mass-Lean-Agile-RAM
Opsessia
16
Class Room
The elemental agility uses basic resources and remains at
an individual level; micro agile crosses the organizations
involved. But organizations forms can also be viewed at
different levels, the individual level, the enterprise level
and the inter enterprise level. But our interest lies with the
most advanced form of agile manufacturing which crosses
the boundaries of the organization. It emphasises the
building of core competence to enable the agile
organization to supply highly customized products. Figure
illustrates the relationship across the three organizational
levels emphasizing the aspects of resource competence to
demonstrate the degree of agility.
There are categorical difference between mass
production, lean production and Agile manufacturing.
Lean manufacturing which emphasis the efficient use of
resources is simply an enhancement of old mass
production methods. In contrast new Agile manufacturing
systems break out of the mass production mold to
produce highly customized products.
· Lean production is regarded by many as simply an
enhancement of mass production methods
whereas agility implies breaking out of the mass
production mold and producing much more
highly customized products.
· In a product line context, Agile manufacturing
amounts to striving for economies of scope rather
than economies of scale. Ideally serving ever
smaller niche markets but without the high cost
traditionally associated with customization
· Agile embodies such concepts as rapid formation
of multi-company alliances or ever virtual
companies to introduce new products to the
market.
· A lean company may b thought of as a very
productive and cost efficient producer of goods
and services
· Agile company is primarily characterized bas a
very fast and efficient learning organization.
Core competency is the key
Resources of single companies are no longer sufficient or
adequate for each step of the value creation process. Thus
the traditional value added chain is reshaped, so that
companies now concentrate on their core competence
(those aspects which they can do very well), while other
functions or services are produced by their partners.
Different sorts of core competencies are combined by a
specific bundling of success-critical abilities. Prahalad and
Hamel (1990) defined core competence as “the collective
learning focused on developing and coordinating a diverse
range of skills and capabilities. These are like the hidden
roots of a tree, giving corporations their strength.
Integrating core competencies requires collective
organizational learning, deep involvement and
commitment to cross the enterprise boundary. Short life
of modern enterprises can be attributed to weakness in
learning competence of any organization.
Conclusion
With rapid changes taking place in the global market, it
becomes clear that manufacturing enterprises working on
a base of Agile manufacturing become leaders but, the
effect of this new managerial system, new approaches to
technology and new ideas need to be continuously
developed. Manufacturing has evolved from Mass
manufactur ing , lean manufactur ing to Agi le
25
OpsessiaClass Room
According to the concepts of the operations, the design of
distribution network for a logistics company is a network
design problem. That network has to be optimized to meet
the demand at different nodes of the network for the
given distance between the nodes, cost of goods transfer
in the pipeline and cost of warehousing. But, in India,
historically, the supply chain or logistics of any
organizations are driven by tax considerations rather than
the operational efficiency. Introduction of Goods and
Services Tax (GST) will change the situation and the
logistics industry is expected to go through a major
transformation providing opportunities for new players
and new business models.
Current scenario
The current tax structure is quite complex - there are
central level taxes in form of excise, customs duty and
Central Sales Tax (CST@4%), and then there are varying
state level taxes in form of VAT and other levies like cess
etc. The problem is that, state level taxes are applicable on
top of central taxes which mean the supplier is paying
taxes on taxes.
Tax structure has created an interesting exemption from
central tax if there is a stock transfer between the states
where as any inter-state sale is taxable. For example, an
organization having warehouses in two different states
can transfer the stock between the two warehouses
without paying CST and get away by paying only state taxes
after selling the goods in that state. But any sale between
the two states will be taxable under CST and state taxes are
applied over the CST.
Now, the only way to avoid this double taxation is to create
warehouses in every state and perform stock transfer
between inventory stocking points. Hence, most
industries - like manufacturing, FMCG and third party
logistics players - generally have warehouses/offices in
each state to reduce tax burden of Central Service Tax
(CST). Thus, distribution network planning is more driven
by logic of saving taxes, rather than achieving operational
efficiency.
The network planning is divided into two stages where you
first decide whether to have a warehouse in that state or
not and if yes, then decide where to setup the warehouse
in the state. The decision of whether to have a warehouse
in a particular state or not is simply a trade off between the
CST incurred if there is no warehouse and inventory costs
incurred if there is a warehouse. Both the tax payable and
the inventory costs are driven by the demand in that
particular state. As shown in the figure, only if the total
demand in the state is greater than d*, it is profitable to
setup a warehouse in that state. When the demand is less
than d*, it is profitable not to have a warehouse in that
state as the cost of tax is less than the inventory cost.
After deciding to setup a warehouse in a state, now the
decision of where to setup in that state should be
addressed. As shown in the figure, majorly two strategies
are followed for this problem namely, entry point strategy
or centre of gravity strategy. Primary shipping cost
(shipping from factory to warehouse), warehousing cost
and secondary shipping cost (shipping from warehouse to
retailer) are the decision variables here. The total
weighted average cost of shipping (demand at retailers are
the weights) determines the strategy to be followed. Entry
point strategy is profitable if the secondary shipping cost is
less than primary shipping cost and centre of gravity is
Impact of GST on Supply Chain Industry
Opsessia
24
Class Room
going through a gloomy phase with many major
companies incurring losses and defaulting on dues. To
invest in advanced technology may seem like a luxury to
them in these turbulent times. However, it should be
understood that these Green initiatives are for the long
term and for a better future, both for the industry and for
the society as a whole. This paper identifies some key
operational strategies and methods to address the issue of
the transformational initiative of going green. It should be
understood that the best place to improve and implement
changes is in the core operations of the particular Airline
corporation and the Industry as a whole. The need for
researchers and producers in the field of renewable energy
especially aviation grade biofuel also calls for utmost
attention.
1. 2 million tons per year: A performing biofuels
supply chain for EU aviation. (2011). Retrieved
08/07/2011, from
http://ec.europa.eu/energy/technology/initiatives
/doc/20110622_biofuels_flight_path_technical_pa
per.pdf
2. Advanced Biofuels Project Database. (5/3/2011).
Retrieved 7/22/11, from
http://biofuelsdigest.com/bdigest/2011/05/02/adv
anced-biofuels-capacity-to-reach-4-3b-gallons-
by-2015-128-projects-latest-database/
References
3. Deutsche Lufthansa AG in Travel and
Tourism (World). (04/2011). Retrieved
08/05/2011, from
http://www.euromonitor.com/deutsche-
lufthansa-ag-in-travel-and-tourism/report
4. Deutsche Lufthansa AG: Company
Profile. (7/27/11). Retrieved 8/3/11, from
http://www.datamonitor.com/store/Produc
t/deutsche_lufthansa_ag?productid=81313
A31-5353-4DF7-9388-B6DE7B935749
5. Barbout, C (2006). Trends in European
Airline Markets: Competition,
Concentration and Strategic Behaviour.
Journal of the Brazilian Air Transportation
Research Society, 2(2),
6. Clement, S, Wilkins, M, & Beyzh, M
(02/18/2011). Airline Carbon Costs Take
Off As EU Emissions Regulations Reach
For The Skies. Retrieved 08/23/2011, from
http://www.environmental-
finance.com/download.php?files/pdf/4d663c478e
fb8/Airline%20Carbon%20Costs%20take%20Off.
7. Mayor, K, & Tol, R S J (2010). Scenarios of carbon
dioxide emissions from aviation. Global
Environment Change, 20, 65-73.
8. Miyoshi, C, & Mason, K J (2009). The carbon
emissions of selected airlines and aircraft types
in three geographic markets. Journal of Air
Transport Management, 15, 138-147.
9. X.D. Li, C.S. Poon, S.C. Lee, S.S. Chung and F. Luk
(2003). Waste reduction and recycling strategies
for the in-flight services in the airline industry.
Resources, Conservation and Recycling, 37, 87-99.
Joydeep Barman IIM - Lucknow
17
OpsessiaClass Room
Manufacturing and now the world prepares itself for Real
Agile Manufacturing which focuses on investing in core
competencies, virtual organizations and sharing all types
of resources and to satisfy customers in terms of service
and quality. Hence IT is an essential condition and the key
to many problems faced. For the experts developing Real
Agile Manufacturing may focus on the following major
issues
· A methodology for evaluating potential
partner for RAM based on core competencies
and market forces needs to be developed
· Managerial model and organizational
characteristics of RAM
· Importance of Social Capital under the
new technique of RAM
· Development of new supply chain models
and to create techniques for measuring
performance and evaluating risk in the new
agile systems.
References:
· Small, A.W. and Downey, A.E., (1996), ̀ `Orchestrating
multiple changes: a framework for managing
concurrent changes of varied type and scope'',
Proceedings of IEMC 1996 Conference on Managing
Virtual Enterprise, Canada, pp. 627-34.
· Thompson, J. (1967), Organisation in Action, McGraw-
Hill, New York, NY.
· Sharifi, H. and Zhang, Z. (1998b), ``Enabling practices
assisting achievement of agile manufacturing'',
Proceedings of the Sixth IASTED International
Conference, Robotics and Manufacturing, July 26-31,
Banff.
· Drucker, P.F. (1968), ``Comeback of the entrepreneur'',
Management Today, April, pp. 23-30.
· Kidd, P.T. (1995), Agile Manufacturing, Forging New
Frontiers, Addison-Wesley, London.
· Dove, R. (1994-1996), ̀ `Agile and otherwise'', series of
articles on agile manufacturing, Production Magazine,
November to July.
· Hamel, G. and
Prahalad, C.K.
( 1 9 9 4 ) ,
``Competing for
t h e f u t u r e ' ' ,
H a r v a r d
B u s i n e s s
Review, July-
August, pp. 122-
8.
Abhinav SinglaIMI, New Delhi
Opsessia
18
Class Room
Millions of vehicles ply the Delhi Noida Toll Bridge everyday but few people are aware of the operating structure behind the development of such a humongous flyover. Delhi Noida Toll Bridge was the first BOT (Build- Operate- Transfer) project undertaken in India.Build-Operate-Transfer is a type of Public Private Partnership (PPP) of finance and operating approach that has become popular mainly in the privatization of infrastructure in the developing countries. In India and other developing countries, rapid economic growth is more than infrastructure supply. Governments of these countries are unable to fund vital infrastructure development, so they are increasingly turning to large international firms for finance through concession contracts such as Build-Own-Transfer (BOT). Such firms generally have a greater credit rating and financial capability to finance the large scale projects. If executed properly, BOT results in a win-win-win solution for governments, private sector firms, and the community at large. From the perspective of the government, private sector participation offers off balance-sheet funding at the same time bringing the advantage of cost and resource efficiency to the project. As far as private players are concerned, BOT projects help them to expand market share and earn higher returns. Finally, because there exists a user -payer system, the common man does not have to bear the burden of increased taxes.The globalization of trade has compelled countries to have adequate infrastructure in order to keep pace with other growing nations. Inefficient infrastructure
becomes a bottleneck and thus creates a need to meet the infrastructure chasm or to turn existing infrastructure more efficient in many developing countries. Canning and Pedroni have studied the effects of efficient infrastructure on per capita income of countries over the period 1950-1992. The results of this study provide clear link between infrastructure and long run growth.What are the critical factors with BOT??
As BOT projects are high risk investments, may result in political and economic instability, social, technological and other non-financial factors can have implications on the financial viability of the project over the long term of investment. Hence a holistic assessment of the financial as well as non- financial factors of the concerned project needs to be undertaken for effective decision making.
Selection of BOT projects is critical. If the pre-planning stage of the project is done inaccurately, the consequences may prove to be disastrous. Such as Chinese first water supply BOT projects – No.6 Branch of Chengdu Water Supply Factory, the inaccurate forecast of the market demand in project planning process led to the oversupply. However, according to the agreement between the government and the project company, the government had no choice but to accept all water, which brought phenomenal loss to the government.
The most important factor in the BOT projects is to perform a project feasibility s t u d y a n d e v a l u a t i o n thoughtfully, which may include economy, conditions o f c o n s t r u c t i o n a n d production, market, law, technology, environment etc. The study of BOT projects is different from others. Besides the law permission, the most crucial thing is the evaluation of finance and of the national economy. The BOT project is approved by the government if s u c h e v a l u a t i o n s a r e satisfactory and acceptable.
Build Operate Transfer- A new schema in Infrastructure Development
23
OpsessiaClass Room
3. Waste Management
3.1 In-Flight Waste: Numbers tell the whole
story
3.2 Operational Aspects
The average airline passenger generates 1.3 lbs. of waste 8,9per flight . There are many items in the current in-flight
services' waste streams that can be minimised and
recycled. Following is the breakdown of the types of waste,
which came to light after a study, which was conducted on 9Cathay Pacific flights .
Based on current recycling opportunities, clean paper
items, transparent Polystyrene (PS) items and aluminium
cans have been identified as the most feasible recyclable
materials. These materials can be separately collected on
board for the recycling programme. The recyclable items
can account for up to 45-58% of the total galley and cabin
waste from in-flight services. The waste reduction and
recycling programme has the potential to contribute
greatly to local and global environmental protection, and
to save substantial operation costs for the airline industry.
According to “A Green America” report, no airline
provides good public information about its recycling
programs. Their websites, sustainability and annual
reports all lack transparency and details about the waste
they generate and how they are addressing it. Major
Airlines should take the first step in this regard and
differentiate itself from its competitors by providing a
regular report showing metrics on how it is progressing
toward its recycling goals.
Airlines can overcome any of the challenges by creating in-
flight recycling programs, including employee education
and involvement, knowledge of the type of waste
produced, and a time and space efficient system.
Additionally, they should increase the awareness about
recycling among the passengers. A video could be shown
to passengers about recycling, hoping that it will spur
participation in onboard recycling. The menus to be used
on flights can be printed on recycled paper with soy ink
and coffee can be served in cups made of post–consumed
recyclable paper. It can also offer local, organic, and
sustainable foods on flights.
We observed from the study of European Airlines that they
are doing everything possible to account for lowering their
carbon emissions consequent to the introduction of airlines
industry in ETS policy. Biofuel can be considered as the
most significant of them all. India is growing fast in the
Carbon Trading sector, which is even traded in the Multi
Commodity Exchange. It is also the first exchange in Asia
to trade Carbon credits. Hence reduction of Carbon
emissions is soon to catch attention for all the Indian
industries. At present times, the Airline industry in India is
Conclusions
OpsessiaClass Room
Consequent to the high prices of biofuel currently, if the
same quality of required biofuel can be procured from low
cost countries matching with the destination of the flight, it
will add cost benefit to the bottom line. The below
diagram, Fig. 2 shows a depiction of probable
collaboration with international producers.
India lags behing in the research and development of
producing aviation grade biofuel. Not only is the
technology missing but also the current production
capacity of biofuel is suited only for research needs and
cannot be commercialized.
Though this is a very viable option towards a greener and
sustainable future, however it has some challeneges which
needs to be handled and overcome carefully.
All the airlines currently use paper boarding passes
including some which provide mobile check-ins for its
customers. It can be proposed to implement use of Smart
Cards instead of paper based boarding passes for Frequent
Flyers of the specific airlines for domestic services. A smart
card reader will be installed at airports enabling customers
to automatically check in at the airport by tapping their
frequent flyer smart card on the reader. The card reader
will use Near Field Communication technology so that
installation is smooth and less disruptive.
1.2 Risks and Opportunities
2. Next Generation Check-In: Smart Cards instead of Boarding Passes
Risks
· Bargaining power of suppliers
· Increasing demand
· Less number of suppliers
· Uncertainty of biofuel prices
· Issues raised by Activist groups towards
indirect impact on agriculture for using biofuel
· Supply and Demand gap
· Government policies and regulations
Opportunities
· Most viable way to reduce carbon footprint
· Portray as a Green Brand among customers
· Save Costs from buying additional Carbon
Credits
· Extra Carbon Credits can be traded at
profitable prices
· Creation of Goodwill to the society and
Governement
· Collaborate with international biofuel
producers
OpsessiaClass Room
Value Engineering is an important means of quality improvement. Value Engineering analyzes the function and the cost of the project systematically. The basic formula of Value Engineering:-
V= F/C
Where-F=FunctionC= Cost
It is difficult to reach the goal of the construction project because of the large scale, big ticket investment, long period of construction, technical complexity and implementation difficulties etc. Project Controlling is a management-organization model which can prove to be helpful here. With the modern information technology, it conducts information collection, processing and transmission, which can guide and control the material flow of the project construction, and hence support the top management in decision making to plan, coordinate and control the project.
Model for Project ControllingThe following figure explains how an infrastructure construction project in India is undertaken-
THE CHALLENGES FOR INDIA IN INFRASTRUCTURE DEVELOPMENT
1. India's banking system is regulated Reserve Bank of India, which sets interest rates. The financial condition of the country prevents the Indian government from opening the sector to foreign competition. Moreover, loans are often sanctioned on the basis of political connections. In many cases, bank branches extend loans to firms controlled by local officials, even during periods when the central government is attempting to limit credit. Such a system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns.
2. Rapid economic growth cannot be sustained without proper transportation and reduction in pollution level. Also India's investment in infrastructure development has not been able to keep pace with its economic growth.
3.The legal issues in India also pose a problem as widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government 'connections', not market forces, are the main determinant of successful firms in. Many foreign firms find it unviable to do business in India because rules and regulations are not transparent, contracts take time to get enforced, and intellectual property rights are not protected because of the lack of an independent judicial system. The lack of effective rule of law, current ownership of land, and widespread local
FinMin to monitor
large
infrastructure
RBI Allows
Banks & NBFCs
To Sponsor
Infrastructure
Debt Funds
PPP
1922
21
OpsessiaClass Room
reduce the consumption of Jet Fuel by adding 10% Biofuel
to the Jet fuel consumption till 2020. The Fuel consumption
of the German Airline major, Lufthansa Group for the year 3,42010 was 8,459,255 tonnes . In the year 2020, the Jet fuel
requirement as per estimate will stand at 11.368 million
tonnes. For a target of 10% Biofuel, the requirement of
Biofuel would be 1.137 million tonnes for Lufthansa alone.
Lufthansa has been the pioneer to set an example by
undergoing through a contract of procuring aviation grade
Biofuel from Finland's Neste Oil. Neste Oil has
commercialized the production of aviation grade biofuel
using its innovative process named as NExBTL. Neste Oil
has a current production capacity of 380,000 TPA from its
Finland plants.
The new Singapore Plant, the largest production facility of
Biofuel with an annual production capacity of 800,000 TPA
and an upcoming facility with a similar capacity in
Rotterdam, Netherlands will take the total production
level of Neste Oil to around 2 million TPA. This capacity of
Neste Oil will be sufficient to fulfill the demand of
Lufthansa.
However, the scenario is not the same for all the other
Airlines. Besides procuring the biofuel locally it is highly
advised to collaborate with international biofuel
producers. Most of the major Global airline companies
have operations worldwide in almost all major countries.
“Going Green” Operational Strategy of European Airlines – a lesson for the India's Airline Industry
Introduction
1. Use of Biofuel
1.1 Strategic Sourcing of Biofuel
The aviation sector is a growing field globally. The growth
is very high in emerging markets especially Asia and low
in the developed countries. However, the growth in the
developed countries is not insignificant. With a high
growing potential of this sector, it is expected that the 1global growth will sustain at 4.5% till 2050 . With such a
growth rate, the CO emissions are also expected to 2
increase substantially. To address this issue, aviation sector
has started to rejuvenate their operations, improve old
fleet, and procure fuel efficient aircraft. These measures
can only address the emission issues to some extent but
still the carbon emissions are considered to increase to 1three times that of current figures by 2050 . European
Union legislation has recently taken the initiative of
reducing the carbon emissions in the European aviation
sector and hence has included aviation in the Emission
Trading Scheme (ETS) to be initiated from 2012. This has
been implemented amid numerous protests coming
especially from the airlines operating outside Europe but
those who have a substantial number of destinations in
Europe. This means that all the Airlines having current and
future operations in Europe will be subjected to ETS and
hence improvements must be brought in its current
operations to reduce carbon emissions to the lowest level
possible. The following European Airline groups were
studied for this purpose: Lufthansa Group, Air France –
KLM Group and International Airlines Group.
Aviation Biofuel has been found out to be the most
appropriate clean fuel to replace the currently used
Aviation turbine Fuel (ATF). European Union, the
pioneer in including Airlines industry in ETS has
suggested the subsequent use of Biofuel in the daily
operations of Airlines. Many big airline companies,
namely Lufthansa, Air France, Continental Airlines, and
Alaska Airlines etc have successfully tested the use of
Biofuel and are also mixing it with conventional fuel in
regular flights. Fig. 1 depicts the long–term strategy
undertaken by some airlines to replace the use of
conventional ATF.
A primary objective of EU's major airline companies is to
Fig. 1: Strategy of European Airlines for
implementing the use of Biofuel
Opsessia
20
Class Room
India needs are more than Rs.145000 crore for the next 5 years to meet its infrastructure needs. To fund this growth, India needs to encourage foreign participation besides domestic private investment. POLICY can play a major role in this regard. Indian government has come u with its new PPP draft policy. The major initiatives undertaken in this policy are
What should Indian government do to enhance the participation of private players?
Develop the domestic debt capital market-
Infrastructure development is constrained by
insufficient funding. Therefore taking key initiatives
to open the domestic debt market by making it more
attractive to private investors can create a multiplier
effect on the infrastructure front. Utilizing the
potential of insurance sector fro risk mitigation can
play an important role in inducing private players to
invest in infrastructure development. Initiation of FDI
in infrastructure development of India should be
done immediately to overcome the shortage of
funds. If these measures including certain non
financial factors are taken are of, India will soon
emerge as a developed country.
References
http://www.pppinindia.com/draftpolicy.php
http://en.wikipedia.org/wiki/Build-operate-
transfer
http://www.seiofbluemountain.com/upload/
product/200910/2008glhy13a16.pdf
http://www.economictimes.indiatimes.com
www.financialexpress.com%2Fnews%2Fnaba
rd-funding-for-rural-infrastructure-
crosses-rs-one-lakh-crore-mark
AYUSH MANSINGHKAIMI,NEW DELHI
21
OpsessiaClass Room
reduce the consumption of Jet Fuel by adding 10% Biofuel
to the Jet fuel consumption till 2020. The Fuel consumption
of the German Airline major, Lufthansa Group for the year 3,42010 was 8,459,255 tonnes . In the year 2020, the Jet fuel
requirement as per estimate will stand at 11.368 million
tonnes. For a target of 10% Biofuel, the requirement of
Biofuel would be 1.137 million tonnes for Lufthansa alone.
Lufthansa has been the pioneer to set an example by
undergoing through a contract of procuring aviation grade
Biofuel from Finland's Neste Oil. Neste Oil has
commercialized the production of aviation grade biofuel
using its innovative process named as NExBTL. Neste Oil
has a current production capacity of 380,000 TPA from its
Finland plants.
The new Singapore Plant, the largest production facility of
Biofuel with an annual production capacity of 800,000 TPA
and an upcoming facility with a similar capacity in
Rotterdam, Netherlands will take the total production
level of Neste Oil to around 2 million TPA. This capacity of
Neste Oil will be sufficient to fulfill the demand of
Lufthansa.
However, the scenario is not the same for all the other
Airlines. Besides procuring the biofuel locally it is highly
advised to collaborate with international biofuel
producers. Most of the major Global airline companies
have operations worldwide in almost all major countries.
“Going Green” Operational Strategy of European Airlines – a lesson for the India's Airline Industry
Introduction
1. Use of Biofuel
1.1 Strategic Sourcing of Biofuel
The aviation sector is a growing field globally. The growth
is very high in emerging markets especially Asia and low
in the developed countries. However, the growth in the
developed countries is not insignificant. With a high
growing potential of this sector, it is expected that the 1global growth will sustain at 4.5% till 2050 . With such a
growth rate, the CO emissions are also expected to 2
increase substantially. To address this issue, aviation sector
has started to rejuvenate their operations, improve old
fleet, and procure fuel efficient aircraft. These measures
can only address the emission issues to some extent but
still the carbon emissions are considered to increase to 1three times that of current figures by 2050 . European
Union legislation has recently taken the initiative of
reducing the carbon emissions in the European aviation
sector and hence has included aviation in the Emission
Trading Scheme (ETS) to be initiated from 2012. This has
been implemented amid numerous protests coming
especially from the airlines operating outside Europe but
those who have a substantial number of destinations in
Europe. This means that all the Airlines having current and
future operations in Europe will be subjected to ETS and
hence improvements must be brought in its current
operations to reduce carbon emissions to the lowest level
possible. The following European Airline groups were
studied for this purpose: Lufthansa Group, Air France –
KLM Group and International Airlines Group.
Aviation Biofuel has been found out to be the most
appropriate clean fuel to replace the currently used
Aviation turbine Fuel (ATF). European Union, the
pioneer in including Airlines industry in ETS has
suggested the subsequent use of Biofuel in the daily
operations of Airlines. Many big airline companies,
namely Lufthansa, Air France, Continental Airlines, and
Alaska Airlines etc have successfully tested the use of
Biofuel and are also mixing it with conventional fuel in
regular flights. Fig. 1 depicts the long–term strategy
undertaken by some airlines to replace the use of
conventional ATF.
A primary objective of EU's major airline companies is to
Fig. 1: Strategy of European Airlines for
implementing the use of Biofuel
Opsessia
20
Class Room
India needs are more than Rs.145000 crore for the next 5 years to meet its infrastructure needs. To fund this growth, India needs to encourage foreign participation besides domestic private investment. POLICY can play a major role in this regard. Indian government has come u with its new PPP draft policy. The major initiatives undertaken in this policy are
What should Indian government do to enhance the participation of private players?
Develop the domestic debt capital market-
Infrastructure development is constrained by
insufficient funding. Therefore taking key initiatives
to open the domestic debt market by making it more
attractive to private investors can create a multiplier
effect on the infrastructure front. Utilizing the
potential of insurance sector fro risk mitigation can
play an important role in inducing private players to
invest in infrastructure development. Initiation of FDI
in infrastructure development of India should be
done immediately to overcome the shortage of
funds. If these measures including certain non
financial factors are taken are of, India will soon
emerge as a developed country.
References
http://www.pppinindia.com/draftpolicy.php
http://en.wikipedia.org/wiki/Build-operate-
transfer
http://www.seiofbluemountain.com/upload/
product/200910/2008glhy13a16.pdf
http://www.economictimes.indiatimes.com
www.financialexpress.com%2Fnews%2Fnaba
rd-funding-for-rural-infrastructure-
crosses-rs-one-lakh-crore-mark
AYUSH MANSINGHKAIMI,NEW DELHI
OpsessiaClass Room
Consequent to the high prices of biofuel currently, if the
same quality of required biofuel can be procured from low
cost countries matching with the destination of the flight, it
will add cost benefit to the bottom line. The below
diagram, Fig. 2 shows a depiction of probable
collaboration with international producers.
India lags behing in the research and development of
producing aviation grade biofuel. Not only is the
technology missing but also the current production
capacity of biofuel is suited only for research needs and
cannot be commercialized.
Though this is a very viable option towards a greener and
sustainable future, however it has some challeneges which
needs to be handled and overcome carefully.
All the airlines currently use paper boarding passes
including some which provide mobile check-ins for its
customers. It can be proposed to implement use of Smart
Cards instead of paper based boarding passes for Frequent
Flyers of the specific airlines for domestic services. A smart
card reader will be installed at airports enabling customers
to automatically check in at the airport by tapping their
frequent flyer smart card on the reader. The card reader
will use Near Field Communication technology so that
installation is smooth and less disruptive.
1.2 Risks and Opportunities
2. Next Generation Check-In: Smart Cards instead of Boarding Passes
Risks
· Bargaining power of suppliers
· Increasing demand
· Less number of suppliers
· Uncertainty of biofuel prices
· Issues raised by Activist groups towards
indirect impact on agriculture for using biofuel
· Supply and Demand gap
· Government policies and regulations
Opportunities
· Most viable way to reduce carbon footprint
· Portray as a Green Brand among customers
· Save Costs from buying additional Carbon
Credits
· Extra Carbon Credits can be traded at
profitable prices
· Creation of Goodwill to the society and
Governement
· Collaborate with international biofuel
producers
OpsessiaClass Room
Value Engineering is an important means of quality improvement. Value Engineering analyzes the function and the cost of the project systematically. The basic formula of Value Engineering:-
V= F/C
Where-F=FunctionC= Cost
It is difficult to reach the goal of the construction project because of the large scale, big ticket investment, long period of construction, technical complexity and implementation difficulties etc. Project Controlling is a management-organization model which can prove to be helpful here. With the modern information technology, it conducts information collection, processing and transmission, which can guide and control the material flow of the project construction, and hence support the top management in decision making to plan, coordinate and control the project.
Model for Project ControllingThe following figure explains how an infrastructure construction project in India is undertaken-
THE CHALLENGES FOR INDIA IN INFRASTRUCTURE DEVELOPMENT
1. India's banking system is regulated Reserve Bank of India, which sets interest rates. The financial condition of the country prevents the Indian government from opening the sector to foreign competition. Moreover, loans are often sanctioned on the basis of political connections. In many cases, bank branches extend loans to firms controlled by local officials, even during periods when the central government is attempting to limit credit. Such a system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns.
2. Rapid economic growth cannot be sustained without proper transportation and reduction in pollution level. Also India's investment in infrastructure development has not been able to keep pace with its economic growth.
3.The legal issues in India also pose a problem as widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government 'connections', not market forces, are the main determinant of successful firms in. Many foreign firms find it unviable to do business in India because rules and regulations are not transparent, contracts take time to get enforced, and intellectual property rights are not protected because of the lack of an independent judicial system. The lack of effective rule of law, current ownership of land, and widespread local
FinMin to monitor
large
infrastructure
RBI Allows
Banks & NBFCs
To Sponsor
Infrastructure
Debt Funds
PPP
1922
Opsessia
18
Class Room
Millions of vehicles ply the Delhi Noida Toll Bridge everyday but few people are aware of the operating structure behind the development of such a humongous flyover. Delhi Noida Toll Bridge was the first BOT (Build- Operate- Transfer) project undertaken in India.Build-Operate-Transfer is a type of Public Private Partnership (PPP) of finance and operating approach that has become popular mainly in the privatization of infrastructure in the developing countries. In India and other developing countries, rapid economic growth is more than infrastructure supply. Governments of these countries are unable to fund vital infrastructure development, so they are increasingly turning to large international firms for finance through concession contracts such as Build-Own-Transfer (BOT). Such firms generally have a greater credit rating and financial capability to finance the large scale projects. If executed properly, BOT results in a win-win-win solution for governments, private sector firms, and the community at large. From the perspective of the government, private sector participation offers off balance-sheet funding at the same time bringing the advantage of cost and resource efficiency to the project. As far as private players are concerned, BOT projects help them to expand market share and earn higher returns. Finally, because there exists a user -payer system, the common man does not have to bear the burden of increased taxes.The globalization of trade has compelled countries to have adequate infrastructure in order to keep pace with other growing nations. Inefficient infrastructure
becomes a bottleneck and thus creates a need to meet the infrastructure chasm or to turn existing infrastructure more efficient in many developing countries. Canning and Pedroni have studied the effects of efficient infrastructure on per capita income of countries over the period 1950-1992. The results of this study provide clear link between infrastructure and long run growth.What are the critical factors with BOT??
As BOT projects are high risk investments, may result in political and economic instability, social, technological and other non-financial factors can have implications on the financial viability of the project over the long term of investment. Hence a holistic assessment of the financial as well as non- financial factors of the concerned project needs to be undertaken for effective decision making.
Selection of BOT projects is critical. If the pre-planning stage of the project is done inaccurately, the consequences may prove to be disastrous. Such as Chinese first water supply BOT projects – No.6 Branch of Chengdu Water Supply Factory, the inaccurate forecast of the market demand in project planning process led to the oversupply. However, according to the agreement between the government and the project company, the government had no choice but to accept all water, which brought phenomenal loss to the government.
The most important factor in the BOT projects is to perform a project feasibility s t u d y a n d e v a l u a t i o n thoughtfully, which may include economy, conditions o f c o n s t r u c t i o n a n d production, market, law, technology, environment etc. The study of BOT projects is different from others. Besides the law permission, the most crucial thing is the evaluation of finance and of the national economy. The BOT project is approved by the government if s u c h e v a l u a t i o n s a r e satisfactory and acceptable.
Build Operate Transfer- A new schema in Infrastructure Development
23
OpsessiaClass Room
3. Waste Management
3.1 In-Flight Waste: Numbers tell the whole
story
3.2 Operational Aspects
The average airline passenger generates 1.3 lbs. of waste 8,9per flight . There are many items in the current in-flight
services' waste streams that can be minimised and
recycled. Following is the breakdown of the types of waste,
which came to light after a study, which was conducted on 9Cathay Pacific flights .
Based on current recycling opportunities, clean paper
items, transparent Polystyrene (PS) items and aluminium
cans have been identified as the most feasible recyclable
materials. These materials can be separately collected on
board for the recycling programme. The recyclable items
can account for up to 45-58% of the total galley and cabin
waste from in-flight services. The waste reduction and
recycling programme has the potential to contribute
greatly to local and global environmental protection, and
to save substantial operation costs for the airline industry.
According to “A Green America” report, no airline
provides good public information about its recycling
programs. Their websites, sustainability and annual
reports all lack transparency and details about the waste
they generate and how they are addressing it. Major
Airlines should take the first step in this regard and
differentiate itself from its competitors by providing a
regular report showing metrics on how it is progressing
toward its recycling goals.
Airlines can overcome any of the challenges by creating in-
flight recycling programs, including employee education
and involvement, knowledge of the type of waste
produced, and a time and space efficient system.
Additionally, they should increase the awareness about
recycling among the passengers. A video could be shown
to passengers about recycling, hoping that it will spur
participation in onboard recycling. The menus to be used
on flights can be printed on recycled paper with soy ink
and coffee can be served in cups made of post–consumed
recyclable paper. It can also offer local, organic, and
sustainable foods on flights.
We observed from the study of European Airlines that they
are doing everything possible to account for lowering their
carbon emissions consequent to the introduction of airlines
industry in ETS policy. Biofuel can be considered as the
most significant of them all. India is growing fast in the
Carbon Trading sector, which is even traded in the Multi
Commodity Exchange. It is also the first exchange in Asia
to trade Carbon credits. Hence reduction of Carbon
emissions is soon to catch attention for all the Indian
industries. At present times, the Airline industry in India is
Conclusions
Opsessia
24
Class Room
going through a gloomy phase with many major
companies incurring losses and defaulting on dues. To
invest in advanced technology may seem like a luxury to
them in these turbulent times. However, it should be
understood that these Green initiatives are for the long
term and for a better future, both for the industry and for
the society as a whole. This paper identifies some key
operational strategies and methods to address the issue of
the transformational initiative of going green. It should be
understood that the best place to improve and implement
changes is in the core operations of the particular Airline
corporation and the Industry as a whole. The need for
researchers and producers in the field of renewable energy
especially aviation grade biofuel also calls for utmost
attention.
1. 2 million tons per year: A performing biofuels
supply chain for EU aviation. (2011). Retrieved
08/07/2011, from
http://ec.europa.eu/energy/technology/initiatives
/doc/20110622_biofuels_flight_path_technical_pa
per.pdf
2. Advanced Biofuels Project Database. (5/3/2011).
Retrieved 7/22/11, from
http://biofuelsdigest.com/bdigest/2011/05/02/adv
anced-biofuels-capacity-to-reach-4-3b-gallons-
by-2015-128-projects-latest-database/
References
3. Deutsche Lufthansa AG in Travel and
Tourism (World). (04/2011). Retrieved
08/05/2011, from
http://www.euromonitor.com/deutsche-
lufthansa-ag-in-travel-and-tourism/report
4. Deutsche Lufthansa AG: Company
Profile. (7/27/11). Retrieved 8/3/11, from
http://www.datamonitor.com/store/Produc
t/deutsche_lufthansa_ag?productid=81313
A31-5353-4DF7-9388-B6DE7B935749
5. Barbout, C (2006). Trends in European
Airline Markets: Competition,
Concentration and Strategic Behaviour.
Journal of the Brazilian Air Transportation
Research Society, 2(2),
6. Clement, S, Wilkins, M, & Beyzh, M
(02/18/2011). Airline Carbon Costs Take
Off As EU Emissions Regulations Reach
For The Skies. Retrieved 08/23/2011, from
http://www.environmental-
finance.com/download.php?files/pdf/4d663c478e
fb8/Airline%20Carbon%20Costs%20take%20Off.
7. Mayor, K, & Tol, R S J (2010). Scenarios of carbon
dioxide emissions from aviation. Global
Environment Change, 20, 65-73.
8. Miyoshi, C, & Mason, K J (2009). The carbon
emissions of selected airlines and aircraft types
in three geographic markets. Journal of Air
Transport Management, 15, 138-147.
9. X.D. Li, C.S. Poon, S.C. Lee, S.S. Chung and F. Luk
(2003). Waste reduction and recycling strategies
for the in-flight services in the airline industry.
Resources, Conservation and Recycling, 37, 87-99.
Joydeep Barman IIM - Lucknow
17
OpsessiaClass Room
Manufacturing and now the world prepares itself for Real
Agile Manufacturing which focuses on investing in core
competencies, virtual organizations and sharing all types
of resources and to satisfy customers in terms of service
and quality. Hence IT is an essential condition and the key
to many problems faced. For the experts developing Real
Agile Manufacturing may focus on the following major
issues
· A methodology for evaluating potential
partner for RAM based on core competencies
and market forces needs to be developed
· Managerial model and organizational
characteristics of RAM
· Importance of Social Capital under the
new technique of RAM
· Development of new supply chain models
and to create techniques for measuring
performance and evaluating risk in the new
agile systems.
References:
· Small, A.W. and Downey, A.E., (1996), ̀ `Orchestrating
multiple changes: a framework for managing
concurrent changes of varied type and scope'',
Proceedings of IEMC 1996 Conference on Managing
Virtual Enterprise, Canada, pp. 627-34.
· Thompson, J. (1967), Organisation in Action, McGraw-
Hill, New York, NY.
· Sharifi, H. and Zhang, Z. (1998b), ``Enabling practices
assisting achievement of agile manufacturing'',
Proceedings of the Sixth IASTED International
Conference, Robotics and Manufacturing, July 26-31,
Banff.
· Drucker, P.F. (1968), ``Comeback of the entrepreneur'',
Management Today, April, pp. 23-30.
· Kidd, P.T. (1995), Agile Manufacturing, Forging New
Frontiers, Addison-Wesley, London.
· Dove, R. (1994-1996), ̀ `Agile and otherwise'', series of
articles on agile manufacturing, Production Magazine,
November to July.
· Hamel, G. and
Prahalad, C.K.
( 1 9 9 4 ) ,
``Competing for
t h e f u t u r e ' ' ,
H a r v a r d
B u s i n e s s
Review, July-
August, pp. 122-
8.
Abhinav SinglaIMI, New Delhi
Opsessia
16
Class Room
The elemental agility uses basic resources and remains at
an individual level; micro agile crosses the organizations
involved. But organizations forms can also be viewed at
different levels, the individual level, the enterprise level
and the inter enterprise level. But our interest lies with the
most advanced form of agile manufacturing which crosses
the boundaries of the organization. It emphasises the
building of core competence to enable the agile
organization to supply highly customized products. Figure
illustrates the relationship across the three organizational
levels emphasizing the aspects of resource competence to
demonstrate the degree of agility.
There are categorical difference between mass
production, lean production and Agile manufacturing.
Lean manufacturing which emphasis the efficient use of
resources is simply an enhancement of old mass
production methods. In contrast new Agile manufacturing
systems break out of the mass production mold to
produce highly customized products.
· Lean production is regarded by many as simply an
enhancement of mass production methods
whereas agility implies breaking out of the mass
production mold and producing much more
highly customized products.
· In a product line context, Agile manufacturing
amounts to striving for economies of scope rather
than economies of scale. Ideally serving ever
smaller niche markets but without the high cost
traditionally associated with customization
· Agile embodies such concepts as rapid formation
of multi-company alliances or ever virtual
companies to introduce new products to the
market.
· A lean company may b thought of as a very
productive and cost efficient producer of goods
and services
· Agile company is primarily characterized bas a
very fast and efficient learning organization.
Core competency is the key
Resources of single companies are no longer sufficient or
adequate for each step of the value creation process. Thus
the traditional value added chain is reshaped, so that
companies now concentrate on their core competence
(those aspects which they can do very well), while other
functions or services are produced by their partners.
Different sorts of core competencies are combined by a
specific bundling of success-critical abilities. Prahalad and
Hamel (1990) defined core competence as “the collective
learning focused on developing and coordinating a diverse
range of skills and capabilities. These are like the hidden
roots of a tree, giving corporations their strength.
Integrating core competencies requires collective
organizational learning, deep involvement and
commitment to cross the enterprise boundary. Short life
of modern enterprises can be attributed to weakness in
learning competence of any organization.
Conclusion
With rapid changes taking place in the global market, it
becomes clear that manufacturing enterprises working on
a base of Agile manufacturing become leaders but, the
effect of this new managerial system, new approaches to
technology and new ideas need to be continuously
developed. Manufacturing has evolved from Mass
manufactur ing , lean manufactur ing to Agi le
25
OpsessiaClass Room
According to the concepts of the operations, the design of
distribution network for a logistics company is a network
design problem. That network has to be optimized to meet
the demand at different nodes of the network for the
given distance between the nodes, cost of goods transfer
in the pipeline and cost of warehousing. But, in India,
historically, the supply chain or logistics of any
organizations are driven by tax considerations rather than
the operational efficiency. Introduction of Goods and
Services Tax (GST) will change the situation and the
logistics industry is expected to go through a major
transformation providing opportunities for new players
and new business models.
Current scenario
The current tax structure is quite complex - there are
central level taxes in form of excise, customs duty and
Central Sales Tax (CST@4%), and then there are varying
state level taxes in form of VAT and other levies like cess
etc. The problem is that, state level taxes are applicable on
top of central taxes which mean the supplier is paying
taxes on taxes.
Tax structure has created an interesting exemption from
central tax if there is a stock transfer between the states
where as any inter-state sale is taxable. For example, an
organization having warehouses in two different states
can transfer the stock between the two warehouses
without paying CST and get away by paying only state taxes
after selling the goods in that state. But any sale between
the two states will be taxable under CST and state taxes are
applied over the CST.
Now, the only way to avoid this double taxation is to create
warehouses in every state and perform stock transfer
between inventory stocking points. Hence, most
industries - like manufacturing, FMCG and third party
logistics players - generally have warehouses/offices in
each state to reduce tax burden of Central Service Tax
(CST). Thus, distribution network planning is more driven
by logic of saving taxes, rather than achieving operational
efficiency.
The network planning is divided into two stages where you
first decide whether to have a warehouse in that state or
not and if yes, then decide where to setup the warehouse
in the state. The decision of whether to have a warehouse
in a particular state or not is simply a trade off between the
CST incurred if there is no warehouse and inventory costs
incurred if there is a warehouse. Both the tax payable and
the inventory costs are driven by the demand in that
particular state. As shown in the figure, only if the total
demand in the state is greater than d*, it is profitable to
setup a warehouse in that state. When the demand is less
than d*, it is profitable not to have a warehouse in that
state as the cost of tax is less than the inventory cost.
After deciding to setup a warehouse in a state, now the
decision of where to setup in that state should be
addressed. As shown in the figure, majorly two strategies
are followed for this problem namely, entry point strategy
or centre of gravity strategy. Primary shipping cost
(shipping from factory to warehouse), warehousing cost
and secondary shipping cost (shipping from warehouse to
retailer) are the decision variables here. The total
weighted average cost of shipping (demand at retailers are
the weights) determines the strategy to be followed. Entry
point strategy is profitable if the secondary shipping cost is
less than primary shipping cost and centre of gravity is
Impact of GST on Supply Chain Industry
Opsessia
26
Class Room
profitable if secondary shipping cost is more than primary
shipping cost.
With 28 states and 7 union territories in India, that
accounts to 25-40 small warehouses (depending on trade
off explained above and scale of operations) instead of 6-8
large warehouses which would be needed for geography
of this size. For some manufacturers with countrywide
operations, the warehouses are as high as 55 – 60 in
number.
Introduction to GST
From the newly proposed tax structure (GST) which treats
goods and services alike, only the inputs that affect supply
chain are reproduced here. GST is a comprehensive value
added tax on goods and services where the tax is levied on
'value added' at each stage of supply chain and provides
seamless input tax credit throughout the supply chain.
GST does not distinguish between goods and services and
the tax is collected at the point of consumption. Same
taxable value base for computing Central and State GST
hence no cascading impact of tax. There is no cascading
effect of tax on cost under GST and the tax incidence is fully
transparent. Hence the present taxable events such as
“Manufacture” in case of Central Excise and “Sale” in case
of VAT or CST will lose relevance.
Changes in supply chain due to GST
Under the tax structure proposed by GST, the tax is levied
only at the point of sale irrespective of whether it is inter-
state sale or intra-state and both the state and central
taxes are collected on the same base. The final tax on a
product would be the same, irrespective of the structure
or location of its production, procurement of inputs and
the nature and complexity of the distribution chain. This
primarily eliminates the need for having warehouses in
different states. Hence the supply chain would be
undergoing a drastic shift towards re-aligning/merging
the smaller warehouses to most productive and logical
locations - without having to think of tax burden.
With GST, the decision of where to setup the warehouse
will be guided by the distance between the manufacturing
unit & demand centres, service levels to be satisfied,
primary shipping costs, warehouse costs and secondary
shipping costs. As shown in the below figure, the primary
shipping
cost is the cost of shipping goods from manufacturing unit
to the warehouse where the secondary shipping cost is the
cost of shipping from warehouse to the retailer.
Distribution network should be designed in such a way
that, the sum of primary shipping cost, inventory cost and
secondary shipping cost should not exceed direct shipping
cost from supplier to retailer. If a warehouse is shipping to
multiple retailers, then the weighted average cost at that
warehouse should be minimized to get the optimum
distribution network. In general, the primary shipping cost
per unit is less than the secondary shipping cost per unit
because of the good quality of road transport
infrastructure between cities and the economies of scale.
In general, there should be a warehouse within 600Kms of
any demand centre (city) to meet the service level of
delivery within two days of order (industry norm).
Impact of GST
GST would force the suppliers to optimize the supply chain
and gain cost advantage. The optimization would impact
many areas and few of them are discussed here.
Cost reduction: Due to the optimization of distribution
network, the overall shipping cost of the product would be
reduced and the profit margins of the supplier would
15
OpsessiaClass Room
Making the right product at the right time and at
the right price requires adaptable manufacturing
operations management.With success in manufacturing, indeed even survival has
become increasingly difficult. Competition has intensified
from a national arena to a global scale. Product life cycles
have shrunk, yet there is an escalating requirement to
satisfy the specific and individual needs of customers.
Hence a need for Agile Manufacturing is on the cards.
Thus where once a manufacturer's success could be
measured by their ability to cost effectively produce a
single product; success now seems to be measured in
terms of flexibility, agility and versatility. That is, by the
ability to handle continuous improvements and change.
Consequently the changes in markets, customer
requirements technology have become the competition
criteria, and are now the critical factors in determining
manufacturing success. These raid environmental
changes have forced companies to improve their
manufacturing performance in conditions of increasing
uncertainty. Significantly such changes are occurring
faster and more unexpectedly than ever before. An
enterprise is confronted with a continuously changing and
unpredictable environment. Management has responded
to these competitive environmental pressures, in
particular to ensuing uncertainty and volatility by
developing new approaches, concept and methods. As
Sharp et al. (1999) put it, “there are many manufacturing
panaceas” Research by Womack et al. (1990), has
demonstrated that there are many different views about
the ways companies can improve their manufacturing
function to enhance their competitive advantage. Yet,
despite the resultant variety in manufacturing research
some recognizable tendencies are emerging. For example,
in production systems, rigid manufacturing systems are
changing to flexible manufacturing to improve the
system's ability to respond to consumers' needs. In
organization structures, large multi-level organization
structures have been reduced to single level network
structures. Concurrent engineering and virtual have been
introduced. In computer management, single task
applications have been transformed into computer
integrated manufacturing systems (CIMS). The driver of
these changes is the unrelenting evolution of competition.
Competitive advantage is soon lost and newer, sharer
techniques and technologies are honed to provide a new
competitive edge.
Real Agile Manufacturing
It is the strategic process of responding to the
competitive environment of continuous and
unpredictable change by reacting quickly and effectively
to changing markets. It takes multiple winners as an
objective, integration as the means with IT as an
essential condition and core competency as the key.
Agility is driven by competition; fragmentation of mass
markets; cooperative production relationship; evolving
customer expectations and increasing social pressures.
The core of any change includes consumer, competitor,
technology and resources. Accordingly Agile
Manufacturing has been defined in terms of the agile
enterprise, Products, workforce, capabilities and he
environment which gives impetus to the development of
the agile paradigm. The principal elements of the
definitions presented can be summarized as follows.
· Response to change and uncertainty
· Building core competencies
· Supply highly customized products
· Synthesis of diverse technologies
· Intra enterprise and inter enterprise integration
Agile manufacturing embodies the ability to cope with
change by the application of partners' core competencies
to supply customized products. It requires the synthesis of
diverse technologies within an integrated system.
Agile manufacturing is strategic processing in that it must
be deeply incorporated in the organizations development.
However different firms will vary in how they may
strategically respond to the changing business
environment. One consequence of this is that they may
use different levels of agility. From our synthesis of the
elements of agility we can recognize that here are three
distinctive levels of agility, which can be described as
elemental, micro-agile and macro-agile.
ADAPT TO THRIVE Mass-Lean-Agile-RAM
OpsessiaClass Room
increase. Some part of these cost reductions will be
passed on to the customers and there by impacting the
demand for the product.
Automation: In addition to the inefficiency of the existing
distribution network, Indian logistics industry is highly
fragmented resulting in extreme competition and low
margins. Due to the small size, using any ERP solutions for
effective demand prediction would be costly affair. Hence,
most of the small & medium businesses have stayed away
from technology implementations. This impact of
inefficiency and cost burden is passed to end consumer,
either in terms of quality; SLAs or in terms of cost. With
GST, the number of warehouses will be reduced and the
suppliers would be able to think of using automation
which will deliver efficient operations and cost benefits.
Service levels: In the distribution network, service levels
will be specified in terms of number of days required to
deliver an order. Generally accepted norm is 2 days and to
meet this service level, warehouses are ensured to be
within 600Kms of distance from demand centres. Before
the introduction of GST, a demand centre very remote in a
state 'A' which is not within the acceptable distance to
meet the service level could not be served in time by the
warehouse in state A(see the figure). Because of CST, that
particular city cannot be served by the warehouse in state
'B' even though it is very near. This leads to sacrificing the
service levels at some places. With GST, this problem can
be resolved and that remote city can be served by
warehouse in the adjacent state and meet the service
levels.
Overall, introduction of GST would impact the supply
chain industry in a positive way and the organizations
which change themselves to the new structure very
quickly will have competitive advantage. Especially this is a
major opportunity for 3PL firms to gain early market and
establish themselves.
References:
1. Class notes of Logistics Management on 25-10-
2011, an elective by Prof G. Raghuram, Public
systems group, IIM Ahmedabad\
2.http://www.infosysblogs.com/logistics/2010/11/gs
t_impact_on_logistics_indust.html
About the authors:
This article is written by P. Babu Ravi Kumar,
Ravi Kumar Yadavalli & Ajay Miryala. The three
authors of this article are the second year
students of IIM Ahmedabad and have written
this article based on some class notes of an
elective called Logistics Management and few
simulation games.
OpsessiaClass Room
lasting price shocks can change the price of the
final product. In such case (long lasting price
shock) firm 'A' which uses plastic polymer
a s a ra w mater
ial can
succ
ess
fully
u s e
Options and f u t u r e s
to nullify the effect of increase in raw
material prices.
From the above chart, it is surprising to see
that the margins of the plastic product
manufacturing firm hedging against
petroleum prices have in-fact increased
with the increase in oil prices after period T0.
Oil forms an important component in
manufacturing polymer used in plastic. However
the firm producing polymer passes on this cost to plastic
good manufacturer after time T1. This T1-T0 is the cycle
time of inventory replenishment for the polymer
manufacturer. The price of actual polymer used to
produce plastic goods increases after time T2. The time
T2-T1 is the inventory replenishment time of the plastic
product manufacturer. However because of hedging, the
plastic manufacturer had the instantaneous advantage of
rise in crude price in the future/options market, which
increases the margins of plastic good manufacturer (firm
A) after T0. However the effect of increased margin was
nullified after T2, when the inputs cost increased. Thus
the Operations Manager could control the price of raw
materials used in processing and in addition was able to
reap temporary benefits of oil price rise by hedging.
Thus financial instruments when used for Operations
Planning and management can prove as a perfect tool
for cost optimization and margin maintenance.
The field of Operations Management and the experts in
the Operations Management should not just restrict their
focus on improving Operations process to control cost, but
also on allied branches like Finance and Marketing which
could provide important insights to Operations Manager
to help the firm sail through tough times through a
symbiotic amalgamation of tools of Operations
Management, Financial Management and other branches
of management.
References:
Financial Management
Marketing Management
HRM &other alliedbranches
OperationsManagement
Mohit KheraPGDM 2011-13IMI, New Delhi
·*http://www.rediff.com/money/2007/aug/01cspec.htm
14 27
Opsessia
28
Class Room
Supply chain: A chain of supplier and customer'Flow of products from suppliers to customers and flow
of information from customer to supplier' this is what
we call as supply chain. Whenever we talk about
suppliers and customers, we incline to think about
supply and demand. We can say Supply chain is a
complex and dynamic supply and demand network. The
word “dynamic” becomes important here due to several
reasons.
[Picture: Circles A, B…, E are points where they act as
supplier for later circle and customer for earlier circle]
Information Technology and Supply Chain network
optimization
Optimization of supply chain network has become
resurgent because of the kind of tools and technology
available these days. Existing Information and
communication tools can model any complex network
much better than ever before. In recent times,
companies are facing problems not in the designing of
the network but in the optimization of networks for cost
minimization, efficiency and efficacy. This neck to neck
competition has compelled companies to refine and fine
tune their past ad-hoc network.
To optimize a network, some of the critical steps to be
taken are:
1. Sources of supply need to square
2. Customer contracts and service levels to be
reviewed
3. Product mix should be optimized
4. Location, efficiency and duplication of facilities
needs to be addressed
5. Software and technology tools being used
needs to be addressed
Trends in Supply Chain management with engrossment of IT
A. Lean system and Value Stream
Elimination of waste and concept of JIT (Just in time)
comes into picture by changing the style of supply chain
management.
Lean principles focus on creating value by specifying
value added activities from the perspectives of the end
customer as well as the company.
Values are determined by:
1. Identifying all the steps
required to create value
2. Mapping the value
stream
3. Challenging every step
by repeated probing
4. Lining up value, creating
steps so they occur in rapid
sequence
5. Creating flow with
capable, available, and
adequate processes
6. Pulling materials, parts, products, and
information from customers
7. Continuously improving to reduce and eliminate
waste
Role of Information Technology in Supply Chain
13
OpsessiaClass Room
bought a call at a strike price of Rs 500. On expiry the price
of the asset is Rs 450. Vikas will not exercise his call.
Because he can buy the same asset from the market at Rs
450, rather than paying Rs 500 to the seller of the option.
However if the price of asset on expiry is more than Rs 500
(say Rs 600), Vikas can exercise his call option and buy the
asset worth Rs 600 at Rs 500 and thus earn a discount of Rs
100 if the asset was purchased at market price.
The buyer of a put option will not exercise his option (to
sell) if, on expiry, the price of the asset in the spot market is
more than the strike price of the call. For e.g.: Sharad
bought a put at a strike price of Rs 600. On expiry the price
of the asset is Rs 619. Sharad will not exercise his put
option. Because he can sell the same asset in the market at
Rs 619, rather than giving it to the seller of the put option
for Rs 600. On the contrary if the price on expiry is less than
Rs 600 (say Rs 550), Sharad can sell the asset at Rs 600 and
earn a profit of Rs 50 if the asset was sold at market price
Hedging and Operations Management
With the use of Futures and Options, Operations manager
can hedge against future probable rise in input cost by
trading in Options and futures of the related commodities
which go as an input in production cost. Even Operations
managers can trade in futures and Options of Crude oil in
commodity market to provide a cushion for effect of
petrol/ diesel price rise on transportation cost.
If Operations Manager expects a rise in cost of certain raw
materials, he can use futures and Option to negotiate a
price for future uncertain environment and control the
input cost for production. It will also help to reduce
inventory holding and storing cost as the firm may longer
need to have huge pile of inventory to cushion itself from
external uncertainties. Apart from trading on
commodities which are used as raw materials, it would be
wise for the Operations Manager to also trade in Crude Oil,
as it will help provide cushion for transportation cost in
case of oil price rise.
In many cases, firms do not directly buy raw materials
which are traded on Commodity exchange, but buy a
certain processed good from other industry as raw
materials. For example plastic polymer is not traded on the
commodity exchange. However Plastic product
manufacturing firms (say firm A) using plastic polymer as a
raw material in production of Plastic goods, can hedge on
crude Oil which is the major ingredient used to produce
plastic polymer. Thus as crude oil price rises, with a certain
market delay (cycle time), the price of polymer will go up.
However though many industries are immune to
temporary shocks due to their large inventories, long
Opsessia
12
Class Room
However with inflation not only the petrol price, but also
the prices of all the goods and services (labour) goes up
which may put extreme pressures on the firm to
maintain margins at a constant selling price.
As the options for Operations manager are few and
difficult, is there any other easier way in which firms
can protect their margins without having to bother
about the rising cost of inputs?
Yes! There is a way to protect margins without
controlling actual input cost. But for this Operation
Managers have to think out of the field of Operations
management and enter into a world of speculation and
hedging. Operations manager can use financial
instruments like options and futures as a hedging tool to
reduce or at minimum to maintain the input cost and
thus maintain margins.
A brief overview about Futures and Options *
Futures
A 'Future' is a contract to buy or sell the underlying asset
for a specific price at a pre-determined time. If you buy a
futures contract, it means that you promise to pay the
price of the asset at a specified time. If you sell a future,
you effectively make a promise to transfer the asset to
the buyer of the future at a specified price at a particular
time. Every futures contract has the following features:
· Buyer
· Seller
· Price
· Expiry
Some of the most popular assets on which futures
contracts are available are equity stocks, indices,
commodities and currency. The difference between the
price of the underlying asset in the spot market and the
futures market is called 'Basis'. (As 'spot market' is a
market for immediate delivery) The basis is usually
negative, which means that the price of the asset in the
futures market is more than the price in the spot market.
This is because of the interest cost, storage cost, insurance
premium etc., That is, if you buy the asset in the spot
market, you will be incurring all these expenses, which are
not needed if you buy a futures contract.
Options
Options contracts are instruments that give the holder of
the instrument the right to buy or sell the underlying asset
at a predetermined price. An option can be a 'call' option
or a 'put' option.
A call option gives the buyer, the right to buy the asset at a
given price. This 'given price' is called 'strike price'. It
should be noted that while the holder of the call option
has a right to demand sale of asset from the seller, the
seller has only the obligation and not the right. For eg: if
the buyer wants to buy the asset, the seller has to sell it. He
does not have a right.
Similarly a 'put' option gives the buyer a right to sell the
asset at the 'strike price' to the buyer. Here the buyer has
the right to sell and the seller has the obligation to buy.
So in any options contract, the right to exercise the option
is vested with the buyer of the contract. The seller of the
contract has only the obligation and no right. As the seller
of the contract bears the obligation, he is paid a price
called as 'premium'. Therefore the price that is paid for
buying an option contract is called as premium.
The buyer of a call option will not exercise his option (to
buy) if, on expiry, the price of the asset in the spot market is
less than the strike price of the call. For example: Vikas
Head % of selling price Increase in cost % New Amount Selling price 100% 0% Rs 100 Direct material 40% 5% Rs 42 Indirect material 10% 5% Rs 10.5 Labour (both direct and indirect) 20% 0% Rs 20 Miscellaneous cost 10% 0% Rs 10 Transportation cost 10% 50% Rs 15 Margin 10% (75%) Rs 2.5
29
OpsessiaClass Room
Value stream consists of the value-adding activities
required to design, order, and provide a product from
concept to launch, order to delivery, and raw materials
to customers. Value stream contains several mapping
tools which are named as waste visualization tools. A
company can reduce all 7 kinds of wastes by using these
value stream mapping tools.
B. Mass customization
Mass Customization is an operational strategy with
extensive use of information technology tools and
applications which are focused on velocity and
tractability in a make-to-order process of operation,
with the aim of producing large quantities with
minimal changeovers and interruptions. Mass
Customization products are standard products,
providing a company a competitive edge by having
the capability to manufacture specialized or custom
products at the speed, volume, cost, and quality of
standard products.
Mass Customization is different from lean system;
lean system focuses on repetitive manufacturing on
the make to stock process of operation. Mass
customization is oriented towards high-volume,
product mix, adding velocity and flexibility in the
production process. It relates to environments
where a large degree of customized, or specialized
orders, offer a competitive advantage to the
company.
C. Advance planning and scheduling (APS)
An enterprise planning system utilizes planning and
scheduling techniques that consider a wide range of
constraints to produce and optimize plans based on
mathematical modeling under demand and supply
limitations and perform finite scheduling by
analytical tools to come up with a realistic plan. It is
flexible and integrated with implications of
alternative options so that the execution of plan
becomes easier and supportive to the real time
decisions.
It involves advanced information technology
knowledge, programming techniques like linear and
dynamic programming and heuristic and fuzzy based
techniques for optimal solutions.
The core benefits of APS are-
1. Increase accuracy of supply chain
performance,
2. Operate as a real-time system
3. Increases utilization of resources,
4. Enhance efficiency of asset deployment
IT applications and integration with Supply chainIT applications with integration of core supply
chain activities are playing major role in supply
chain management. Development of various
tools and software system for warehousing,
customer relationship management, material
planning and forecasting, Resource planning,
Tracking, Customer data collection has
tremendously changed the managing style of
supply chain of organization.
[Image Source:
www.tompkinsinc.com/systems/default.asp]
A. Cross docking and Vender Management
Inventory
Cross-docking is a technique whereby venders are able
Opsessia
30
Class Room
to reduce their inventory stock significantly. It has
helped in achieving a continuous and smooth flow
between manufacturers' deliveries and store
replenishment without buffer stock at Retail distribution
center.
For a successful cross docking these things are essential-
1. Supply chain partners must be linked with
advanced information systems for coordination
2. A fast and responsive transportation system
3. Forecasts should be much accurate, requiring
the sharing of information
B. RFID system
RFID system consists of readers and tags capable of
storing and transmitting information, a RFID tag is
designed itself as a microchip with an antenna. This tag
is labeled to the products which are going to be shipped.
When the tag comes within the close range of the
reader, the data is captured and redirected to the
workstation computer.
RFID technology has been instrumental in improving
supply chain visibility and reducing theft and
counterfeiting.
Tracking the products through supply chain has reduced
the uncertainty risk and bullwhip effect, improved
collaboration among partners, fewer stock-out
situations, reduced inventory stocks and ultimately
increased the profit by reducing cost.
Reference
1. Srivastava/radio frequency identification
technology: The next revolution in SCM
2. Rockfordconsulting group university/ mass
customization
3. Anand Subramanyam/advance planning and
scheduling
Umesh C.S. Arya IIM -Kozhikode
11
OpsessiaClass Room
In an open economy, production firms are highly
susceptible to the variation in cost of raw materials and
other direct costs. With inflation rate soaring at 9-10% per
annum, it is a difficult task for Indian production firms to
maintain a stable input cost. As a result, there is constant
pressure on the margins of the firms. Achieving a constant
supply of raw materials over a period of time at a stable
cost is the most difficult task for purchasing managers.
Advanced tools like Inventory Management, Warehousing
or Price Forecasting may be used to control prices of inputs
upto a certain level. However even all these methods do
not ensure 100% surety of providing raw materials and
direct inputs at a constant price.
In such an environment, Operations Manager has very few
options from their field of specialisation to keep the
margins stable. Capital Intensive methods may be
employed to achieve economies of scale and reduce the
fixed cost. However the initial cash outlays would take the
cash out of the business making the firm more susceptible
to price fluctuations. Therefore it becomes a mammoth
task for the Operations Manager to seek methods or make
provisions for increase in the direct cost involved in
production.
Historically it has been observed that Indian firms spend
on average 7-9% of the selling price on transportation cost
as against 2.5% in USA. In case of heavy materials like Steel
or Iron, the transportation cost can be as high as 33%. The
reason for such high cost can be attributed to many factors
like state taxes, Toll tax, lack of proper infrastructure like
highways or speedways, government policies etc. The
implication of such high proportion of transportation cost
in the final price is that, a small increase in transportation
cost can cause an increase in overall cost of the product
and a large decrease in margin. Consider an example
where selling price of a product is Rs.100 with a planned
profit margin of 10%. Raw material and direct and indirect
cost would be around 80% of selling price and
transportation cost around 10% in Indian context.
Take a hypothetical situation in which the petrol and diesel
price have gone up by 50% over a period of time (as it has
happened over last few years in India). As a result the
transportation cost would increase by 50%. Even the cost
of direct and indirect materials would rise as a result of rise
in transportation cost to the raw material supplying firm.
Considering that 10% of the price is spent on
transportation by the raw material supplying firm, a 50%
increase in petrol price would lead to 5% increase in cost of
direct and indirect material. Thus with 50% increase in
petrol price, there is 75% decrease in margin of the firm if
selling price is kept constant.
If Operations Manager wants to respond to this huge
decrease in margins, he may have to increase the selling
price or reduce cost under other heads by some way. If he
resorts to increase in selling price and if there are too many
other competitors offering similar product and at similar
price, the demand for the product would go down further
adding to downward pressure not only to profits, but also
the Topline. If Operations Manager decides to reduce the
cost of raw materials, it can be achieved through three
ways
- By reducing the quality of raw materials thereby
compromising the entire product quality OR
- By further negotiating prices from suppliers. OR
- Looking for alternative materials which could be
used as raw materials. However these may involve
increased R&D cost and a complete process re-
engineering which could be costly and adding
higher initial outlays. OR Combination of any of
them Thus just by rise in petrol price, the
company's margin is jeopardised. However with inflation
Achieving Operational Excellence through Financial Instruments
Head % of selling price Actual Amount Selling price 100% Rs 100 Direct material 40% Rs 40 Indirect material 10% Rs 10 Labour (both direct and indirect) 20% Rs 20 Miscellaneous cost 10% Rs 10 Transportation cost 10% Rs 10 Margin 10% Rs 10
Opsessia
10
Moving forward we would expect to see many such
examples from other sectors of Industry, where
Operations Managers would consider India as a missing
link in their Global Supply Chain management and India
would emerge a leading Exporter of the world.
By Mithilesh Borgaonkar
He has completed his BE Electronics, from Sardar Patel College of Engineering, Mumbai
University. He has a work experience of 27 months with MindTree Ltd. after that he
stjoined IMI & is currently in 1 year PGDM, IMI, Delhi. He is also a member of Genesis, the
operations club of IMI.
References
#
*
http://en.wikipedia.org/wiki/Automotive_industry_in_India
http://en.wikipedia.org/wiki/Automotive_industry
Manufacturer Model
Indian Automotive Companies
Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster
Hindustan Motors Ambassador
ICML Rhino Rx
Mahindra Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500
Premier Automobiles Limited Sigma, RiO
San Motors Storm
Tata Motors Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria
Foreign Automotive Companies
BMW India 3 Series, 5 Series, X1, X3.
Fiat India
Grande Punto,
Linea
Ford India
Figo,
Fiesta Classic,
Fiesta,
Endeavour.
Chevrolet Spark,
Beat,
Aveo U-VA,
Aveo,
Optra,
Cruze,
Tavera
Honda Siel Brio,
Jazz,
City,
Civic,
Accord.
Hyundai Motor India
Eon,
Santro,
i10,
i20,
Accent,
Verna,
Sonata Transform.
Land Rover
Freelander 2
Maruti Suzuki 800,
Alto,
WagonR,
Estilo,
A-star,
Ritz,
Swift,
Swift DZire,
SX4,
Omni,
Eeco,
Gypsy
Mercedes-Benz India C-Class,
E-Class
Mitsubishi
Lancer,
Lancer Cedia,
Pajero
Nissan Motor India
Micra, Sunny
Renault India
Fluence,
Koleos
Toyota Kirloskar
Etios Liva
Etios,
Corolla Altis,
Innova,
Fortuner
Audi India
A4,
A6,
Q5
Škoda Auto India
Fabia,
Laura,
Superb,
Yeti
Volkswagen India
Polo,
Vento,
Jetta,
Passat
Club Room
31
OpsessiaClass Room
The recent natural calamities in the Asia Pacific have put up
a question mark on the very validity of JIT. Organizations
who swore by JIT for more than three decades, reaped
immense benefits from it are now questioning the
applicability and future of JIT. Is JIT the real reason for these
losses? Should an approach that has proven immensely
profitable in the past be done away with? Is JIT past its due-
date?
One of the biggest victims of the recent catastrophe in the
ASEAN countries was automotive industry - which has JIT
imbibed in its DNA.
All these losses have forced
companies to rethink on their
A Hitachi factory north of Tokyo that
makes 60% of the world's supply of airflow sensors was shut
down. This caused General Motors to shut a plant in
Shreveport, Louisiana for a week and Peugeot-Citroen to cut
back production at most of its European plants. Nissan also
encountered a similar problem when it had to cut back
production by almost 12% due to stock-out of engines.
Similar story was repeated due to Thailand floods which are a
major supplier of auto ancillary. Frost and Sullivan report
gives a picture of the impact of floods on different OEMs.
The electronics industry
hasn't been an exception to
this case. Dell is facing
shortages in HDDs supplied
by Thailand manufacturers.
Apple and Lenovo had
anxious moments in 2010
when uncertainty loomed
over supply of DRAMs for
their computers.
JIT methods followed currently. Some analysts are even
speculating it to be the end of road for JIT. However, before
making any decision or reaching any conclusion one should
go down to the very fundamentals of JIT, why did it come into
being, how it made so big?
Apart from this, JIT came with
numerous benefits like reduction in setup time, elimination
of waste, cut down in production times and more importantly
better supplier relationships. Companies started seeing JIT
as a competitive advantage.
JIT has been there since more than three decades now, much
before the advent of globalization. It is a time proven system
that enables an organisation to reap immediate benefits of its
actions. Back in the early 80's, a number of American firms
started adopting JIT manufacturing in an attempt to reshape
their manufacturing environment. An immediate outcome of
order based or pull based systems was reduction in
inventories and saved costs. This further encouraged other
organizations to adopt JIT.
In the early 90's development of EDI further improved communication between organizations making supply chains more agile and more responsive. IT tools started becoming more powerful, making supply chains more agile and efficient. In modern times, as product demand lifecycles started shrinking, just in time offered a viable alternative that could significantly reduce financial risk by postponing final assembly of the components as well as reducing inventory levels. DELL's supply chain which emerged during this time was looked upon for its flexibility and efficiency.
Just to have a glimpse of the benefits that the automotive
sector reaped because of JIT implementation, we can look at
the following exhibit.
Measures of inventory management performance used in the
analysis
(Source: John F. Kros, Mauro Falasca, S. Scott Nadler, (2006) "Impact of just-in-time inventory systems on OEM
JIT and supply chain disruptions
9
OpsessiaClub Room
the Indian experience in automobile manufacturing and
favourable government policies by entering into JV with
Indian partners. With over 23 companies producing over
98 brands/models of passenger vehicles in India and 23
companies producing commercial vehicles in India, the
competition in Indian market is fierce.
As a result of such large number of brands coupled with
lower aggregate domestic demand (even though %
growth is higher) the demand of automobiles per brand
gets distributed, with domestic brands enjoying a higher
market share due to higher penetration and customer
confidence. For foreign brands to cater to the small but
ever growing customer demand, setting a small to
medium scale plant would be considered as a viable
option in a short run. However setting a small to medium
scale output plant to meet its current mediocre demand
for medium to h igh pr iced veh ic les would
jeopardisecompany's long term plans and objectives of
growth. On the contrary setting a large scale
manufacturing plant with large production capacity would
result in higher initial cost and excess production.
In such difficult situation, Operations Manager went
beyond the obvious and sought to take advantage of
liberal Indian Export policies and liberal import policies of
countries like those in Middle East, Africa, South East Asia
and South Asian regions. Companies like Nissan and VE
(Volvo-Eicher Motors JV) have setup their large scale
production plants in India to cater for future rise in
domestic demand for automobiles and anticipating
growth in domestic automobile market. At the same time,
the current excessfrom the production was exported to
the countries like those in Africa, Middle East, South Asia
regions. These companies have worked to develop India as
a supply chain management and export hub apart from
countries like Japan and China.
Opsessia
32
Class Room
suppliers")Clearly, the benefits provided by JIT outweigh its risks by a huge margin, so how can one think of eliminating JIT as a system? However, the current set up cannot continue and organizations need to relook at their operation. The reason lies in the history of globalization. Through globalization, organizations now could exploit an opportunity to manufacture in low cost regions at a fraction of the cost which they would have otherwise incurred. Supply chains were now stretched to enable organizations to source components from different vendors across the globe and assemble them at the very end. Very soon this created concentrated manufacturing hubs on the world Map, especially in case of components. E.g.: the Guangdong province in China is responsible for 80% of the world's production of basic electronic components. Similarly Hitachi Chemicals produces 70% of the slurry used by the entire world's chipmaker's to polish their wafers. A just in time approach combined with this globalization exposes organizations to catastrophic risks as can be seen during the recent times. We need to come up with a solution that could mitigate these risks and yet enable organizations to continue reaping these benefits.
Multi-sourcing
During the course of t ime, companies started misinterpreting the JIT philosophy of reducing the suppliers. Companies started the practice of having sole suppliers to achieve economies of scale and build stronger relationships with suppliers. However, this made them vulnerable to such shocks and took away their flexibility. This also led to what is known as reverse bullwhip effect. It has become highly imperative for such companies to increase the certainty in supply by maintaining two or more suppliers which is known as multi sourcing approach. Again, multi sourcing is a strategic decision where the location of two suppliers also matters a lot in such situations of calamities. In case of Japan crisis, some companies with multiple suppliers also failed as both of the suppliers belonged to the same geographic region. De-risking can be done by having supplies from different geographic regions. Honda is a good example of such approach as they have already started expanding their base in India.
Product Configurations and marketing
With a move towards modularization and mass customization, organizations are now capable of offering a variety of product configurations without making huge changes to their operations. Dynamic pricing and flexible product portfolios could help companies such disruptions in certain cases. However, this approach finds limitations in case of critical components and products.
Emergency Stocks
It is necessary for companies to start reconsidering their emergency stocks. It is necessary to decouple supply chains at certain levels. Consider the case of emergency stocks of medicines in case of an epidemic. A pharmaceutical company is expected to ramp up its supplies by several times to be able to contain an epidemic outbreak. However, the government maintains a safety stock to ensure that enough medicines are available during this ramp up. Organizations too must start thinking in terms of these emergency stocks at least in case of certain critical components.
So, rather than having rigid supply chain following classical JIT approach, organizations need to come up with innovative customizations in JIT to counter such disruptions in supply chain.
Sandeep Borkar SJMSOM , IIT Bombay
Gaurav KawaleSJMSOM , IIT Bombay
33
OpsessiaClass Room
Abstract:
Supply chain does not sustain only on the
coherence and synergies between the external
parties engaged in the value chain. The
understanding of the various department oriented
issues need to be considered to unlock the
potential of the organizational efficiency and
productivity. The intra-organizational balance
pertaining to the issues of the operations in the
organization can never be handled without the
effective integration and cross-functional teams
(Oliva, 2006). Sales and Operations Planning makes
it possible to unleash the organizational power of
handling the problems effectively for excellent
demand-supply management. A study done by
Aberdeen Group in 2008 suggests that the best in
class companies implementing S&OP, were having
2.5 or 6 times better KPIs than that of the other
companies. Paper uses concepts and small cases to
discuss how Sales and Operations Planning is a
fundamental that still works best (Stahl, 1999) and
can be greatly improved with the advanced
functions & tools like CPFR& BI.
Are you doing S&OP properly?
Nowadays, nearly every successful company
working with excellence in the Supply chain
management performs Sales and Operations
Planning (S&OP). S&OP is the single most critical
competitive weapon that can ensure profitability
with right selection of the channels and products
for the right customers. But often it is found that
the S&OP is not prepared or improved in the way it
should be. Sometimes it may be because of
inappropriate ways or improper choice of the tools
used to prepare S&OP making it more cumbersome
and laborious. The research (Joseph, 2009) shows
that 70% of the organizations will be changing their
technology and are on the verge of enhancing their
S&OP process in near future. It indicates that the
S&OP needs to be improved and enhanced
continuously and is necessary for the organization.
At the same time, the opportunities and threats
related to S&OP should not be overlooked.
The case Elkay Manufacturing (Cary Wood, 2002)
studies the adverse effects of competitive
environment in the market. The need for
improvement made the Elkay managers think about
the alternate ways to improve the organizational
performance in the market by increasing the
involvement of the top management. Finally it was
revealed that S&OP provided Elkay a “one-plan
process” which was the key for the success
revealing the important principles for S&OP, which
can be followed by an organization to strengthen
existing S&OP as follows-
1) Top management is the one who should
lead the S&OP implementation and
assessment. Employees in the organization
must be aware of S&OP & their roles.
Executive S&OP champion must be an
influential personality and must have
experience in demand or supply
management at higher level in the
organization.
2) Resource effectiveness must be based on
the multi SBU combination consisting of
supply chains with the focus on the profit
Improvement of S&OP and its Synchronization with advanced functions:A key to sustainable operations management
Opsessia
8
Club Room
Opsessia
34
Class Room
optimization.
3) S&OP document must be used for each and
every process requiring the data about
sales/operations or financial plans. It must
be used as a master document in the
organization. It should not be redundant or
substitutable.
4) Every employee in the organization must
participate towards the development of
S&OP if a specified process is supposed to
be done by him/her. Right people must
present right work at the right time with
clarity about their activities and roles.
5) Accurate data must be used or obtained by
using formatted data obtained from
shipping schedules, forecasted sales,
warehousing, production or from other
operational management processes in the
organization.
6) Use of collaborative platforms increasing the
frequency of the interaction between the
people to share the structured information
is necessary for success of S&OP and proper
maintenance of master data for getting
accurate output.
S&OP & other advanced functions and tools
With the advent of the technology and revolution in
distribution and logistics, Sales and Operation
Planning needs to be combined with other
application functions to improve the performance
of the organization in the view of the increasing
competition.
Synchronization with CPFR
The famous Collaborative Planning, Forecasting and
Replenishment (CPFR) concept used by Wal-Mart
(1995), P&G and others, is a function that has
potential to streamline the organizational
forecasting and eventually helping S&OP to increase
the clarity and performance through different ways.
In CPFR the burden of replenishment is on the
collaborative partnership of the customer and the
supplier. Thus, the retailer's point-of-sales data
(POS) data is used for forecasting. Promotions on
sales, exception items, major customer relationship
maintenance, etc. issues are handled collaboratively
& resolved. When it comes to organization of
supplier we can say that S&OP plays a major role in
breaking down internal barriers. Thus these two
functions can work simultaneously to increase the
Supply chain efficiency.
Synchronizing CPFR and S&OP activities will lead to
the sharing of information from both the functions
and input to each other for better performance.
The accurate forecasts using POS data and periodic
update about inventory from CPFR function is used
as input for the S&OP activities. The market trends
can be studied at CPFR end to use it as the indicator
of market conditions. The decisions taken at the
S&OP are then implemented at retailer levels like
promotions, operations management related
decisions, etc.
The monthly schedule of CPFR and S&OP must be
tightly coordinated and coherently maintained by
adhering them together. Week 1 activities of CPFR
activities must adhere to week 1 activities of S&OP
also Week 2 activities of CPFR activities must
adhere to week 2 activities of S&OP and so on. The
schedules of both functions must be aggressively
adhered to get efficient output.
The demand planners who are involved in the CPFR
process and dealing with different chains or
7
OpsessiaClub Room
India: An emerging face as a Global Supply Chain Management Hub
When it comes to producing products at low cost and
higher quality, it's a common notion for manufacturing
firms to think of Japan or China. While manufacturing
products, the three important aspects on which a plant
location is decided is the cost, quality and delivery. China
and Japan has proved their leadership in producing high
quality goods at a lower cost and maintaining a stringent
timeline. All this has been made possible through years of
research, fine tuning in Operations and Supply Chain
Management, through initiatives like TQM, Kaizen, Six
Sigma, Lean manufacturing and many other operational
excellence practices. As a result these countries have
emerged as a preferred destination for manufacturing
firms and have emerged as the leading exporters in the
world along with other developed nations like Germany,
USA and European Union. thIn 2010, India ranked 17 overall in total exports to the
thworld. However, India ranked 7 in the world for total
vehicle production in year 2010.
The prime reason for India being on the top of the charts in
Automobile production is the increasing demand for 2 and
4-wheelers in India. However traditionally in Automobile
sector India was never considered as an exporting country.
All the indigenous automobile manufacturers usually used
to cater to the domestic demand and designtheir
Operations and Supply Chain management accordingly.
However this scene is changing and that too rapidly. With
improvement in Infrastructure, favourable central and
state government policies and the opening up of the
economy has caused many firms to rethink their supply
chain management strategies. The following two articles
which appeared in the Economic Times on the same day rd(dated 3 Oct 2011) are the proof of the new supply chain
management strategies adopted by Global Automobile
manufacturer in India.
The New Operations Strategy
The automobile demand for 4-wheelers and commercial
vehicles like trucks and goods
carrier are increased manifold in
India. The Automobile industry in
India is one of the largest in the
world and is also one of the fastest
growing industry globally. India's
passenger car and commercial
vehicle manufacturingindustry is
the 7th largest in the world, with an
annual production of more than
3.7 million units in 2010*.
According to recent reports, India
is set to overtake Brazil to become
the sixth largest passenger vehicle
producer in the world, growing 16-
18 per cent to sell around three
million units in the course of 2011-
12*. In 2010, India emerged as
Asia's fourth largest exporter of
passenger cars, behind Japan,
South Korea, and Thailand.
With increase in domest ic
demand, global automobile
manufacturers are rethinking their
Supply chain strategy and are
s e a r c h i n g f o r i n n o v a t i v e
techniques to take advantage of
35
OpsessiaClass Room
customer group have to participate in the joint
responsibility of S&OP so that the data collection
for demand management is uniform for a particular
segment with no variations and can be aggregated
to calculate the aggregate demand and
corresponding supply capacity at S&OP level as
shown in fig.1.
The study conducted
(Williams) on CPFR and
S&OP synchronization
suggests that in only 10
months, the forecast
accuracy was improved
from 27% to 70%. It
suggests that the
efficiency of the
organization increases
with this potent
combination of CPFR
and S&OP.
Optimization of Output using BI tool
Business intelligence/ Analytics collect the
information from all the parts of an organization
and allow top management executives to get the
required analysis reports using data mining.
Following features make BI a tool
that could be used by executives
involved in S&OP process for the
efficient use of data spread in the
organization by analyzing it.
Advantage of BI over ERP: Unlike
the occurrence of the different
number under the same heading
in ERP, BI assures that the data
used across the organization is
same. Importantly the use of
single value of a KPI or
component helps the organization
to reduce the conflicts during
S&OP. Multiple values in ERP may
have a negative effect on the improvement efforts
of S&OP by the organization.
Also ERP does not provide the options such as
Figure. 2. Using BI for S&OP and its improvement
Opsessia
6
good Finance Manager or a good Marketing Manager should also be a good process manager. However, senior people in Finance or Marketing may know a lot about their respective fields but are not very good at managing processes. Similarly, the concept of bottlenecks can be applied to improve the functioning of any department. Sadly enough, the application often remains limited to the Operations function where people are more aware of the concept. A third concept is quality management. Quality is not only required in the final product or service but also in the way bills are passed by Finance function or the way orders are processed by Marketing function.
External to the firm: Firms need to have a strategy to handle competition. An operations based strategy can help a firm to not only establish itself but also take competition head on. According to Hayes and Upton (1998) superior operations effectiveness based on capabilities that are embedded in the people or processes, becomes inherently difficult to imitate. Firstly, an operations based strategy is not very obvious to competitors for quite some time. Secondly, by the time the competitors come to know of the strategy the firm has already gone down the learning curve and developed capabilities which make imitation difficult. Thus, it provides sustained competitive advantage to the firm.
Upton and Hayes provide many examples how small companies have successfully taken on competition in their fieldsby having an operations based strategy. Two such prominent examples are those of South West Airlines and Wal Mart. South West Airlines began operations in 1971. With a clear operations strategy focused on customer service, gating operations and human resources the airlines developed superior operations and in 1992 it was the only American airlines which was making profit. Any attempt by competitors to imitate its operations based strategy failed. Similarly, Wal Mart became a public company in 1972 with just 30 stores. With an operations based strategy, it grew to about 650 stores in a little over ten years. It used computers to track sales and co-ordinate replenishments. Rival firm K Mart,which at one time was much larger than Wal Mart, attempted to imitate this strategybut failed.
Operations form an integral part of any firm. In fact, it is the very reason for other functions to exist in the business world. Finance, Marketing and Human Resource strategies are meant to compliment an Operations strategy and not vice versa. It is high time that our B-schools as well as the students studying in these schools realize the importance of this subject so that the country moves towards excellence in firm based operations which can fuel the growth of the economy of our country.
References1. Hayes, Robert H and Upton, David M
(1998), “Operations based strategy”, California Management Review, Volume 40, No. 4, pp. 8-25
2. www.chroniclesmagazine.org
Dr. SiddharthVarma
Professor, IMI
Specialization
Educational Qualifications
Interest Area
Faculty Profile
Quantitative Techniques & Operations Management
B. E, M Tech, MBA, Ph.D
Supply Chain Management, Technology Management
Professor SiddharthVarma did his B. E. in Mechanical
Engineering from the erstwhile University of Roorkee
(now IIT, Roorkee) in 1985. He did his M Tech from Indian
Institute of Technology, Delhi in 1987 and completed his
Masters in Business Administration from Asian
Institute of Technology, Bangkok in 1993. He obtained
his Ph D from IIT, Delhi in 2008 in the area of supply
chain management.
Faculty Room
5
OpsessiaFaculty Room
Relevance of Operations Management to Management Education
All activities which convert input resources into useful
outputs, either goods or services, are termed as
operations. It is obvious that operations would be
required in any business organization (or for that matter
any organization!) which intends to produce useful
products or services. Operations Management is taught in
B-schools worldwide as a core subject along with other
core subjects which cover Marketing, Finance and Human
Resources. Even though operations are required in service
organizations as much as they are in manufacturing
organizations, the syllabus for the core subject is often
inclined more towards manufacturing. The relevance of
studying Operations Management can be discussed both
at nation level and the firm level.
Nation Level
The importance of studying Operations Management as
part of management education can be appreciated
considering the role of Operations / Manufacturing in the
economy of any country. Manufacturing contributes to
about 15% of our GDP. Despite the fact that the service
sector is growing manufacturing has a crucial role to play
in the growth of the economy. The Industrial Production
Index is considered an important parameter for measuring
the economic growth of the country. A drop in Industrial
Production Index is always a matter of concern for our
Finance Minister.Needless to say, manufacturing holds the
key to economic growth of our country.
The role that manufacturing can play in the economy of
any country becomes obvious when we look at the two
countries: China and the USA. China is now universally
accepted as an economic superpower (apart from it being
a military superpower). The growth of China into such a
strong economy has largely been due to the fact that it has
developed excellence in manufacturing and now
dominates the world markets, be it developed economies
in the West or developing economies like India. Thus,
Operations Management has contributed to the rise of
China as much as it has been the reason for the fall of the
US economy. The USA allowed manufacturing to move out
to developing countries, specially to China resulting in the
current state of affairs. It not only made the US indebted to
China for billions of Dollars but also brought in the high
unemployment rate which is a major cause of concern for
President Barack Obama. In 2007 alone, USA lost 374,00
jobs based on goods producing industries
(source:www.chroniclesmagazine.org) .On the other
hand, China did everything it could to promote
manufacturing and exports in the country. It could attract
huge foreign direct investments and companies moved
their production base to China attracted by the low wages
and incentives provided by the Chinese government.As a
result, the balance of trade is skewed unfavorably
towards the US. If the American economy could do well by
merely focusing on services it would have done so.
Unfortunately, this is not the case. Growth of
manufacturing not only contributes directly to the
economy but also creates services, thus, indirectly
bringing about a growth in services sector too. If a factory
is set up for manufacturing a product it automatically
creates a demand for providing services like
transportation and warehousing. The US probably failed
to realize this. In India, the government has realized the
importance of manufacturing and formulated a
Manufacturing Policy for the country.
Firm LevelApart from the role of Operations Management at the level of economy of a country, its role at the level of business organizations is not difficult to understand. The relevance of studying Operations Management at firm level can be studies with respect to factors which are internal to the firm and those factors external to the firm. Internal to the firm: Michael Porter, in his Value Chain Model, has divided activities in business organizations into Primary and Secondary activities and he has included Operations among the Primary activities. Since Operations creates products or services it is actually the backbone of any business firm. It is the reason for existence for Finance, Marketing and Human Resources functions. It would be strange if the students of business management did not understand basic operations of a firm. Operations of a firm require huge investment both in terms of fixed costs as well as working capital. Understanding these operations and improving them can substantially affect the bottom line of a company. The concepts taught in Operations Management find application in other functions too. Take for example, the concept of process management. Processes exist in all departments of a firm, not only in Operations. A
Opsessia
36
Class Room
slicing and dicing, drilling down and across the wide
database to filter out the information and generate
the useful reports. These options are provided in
the BI tool. Visualizations in the dashboards makes
BI more useful tools for managers preparing for
S&OP meetings.
BI allows communicating and helping people; the
most important part of the S&OP. Business
intelligence empowers employees who are involved
in the S&OP process. It eventually suggests fewer
problems for S&OP interlock making it easier to
arrive at consensus during S&OP.
Framework for implementation of CPFR and BI in
combination with S&OP:The system with the S&OP can be improved greatly with the implementation of the CPFR and BI. Quite a few researches have been done on the synchronization of the CPFR and S&OP. At the same time synchronization of BI tool with these functions increases the efficiency of the system impressively. The suggested framework is as shown in figure.
CPFR schedules must be in sync with the monthly cycles of the S&OP meeting and demand-supply management. The demand planning for each customer segment should be taken into consideration using the CPFR collaboration with Retailers. POS data should form the basis of the forecasts. Business Intelligence tool should be implemented to collect the data (online servers). Functional divisions like marketing, operations, Demand Planning, etc. should use the same data obtained by BI system. The Finance Pre-S&OP should be carried out for the reconciliation purpose. The formal S&OP meeting and aggregate level demand representation will make the organization capable of generating the consensus demand plan which can be used for the further MRP (Material Resource) Planning Procedures.
Conclusion
S&OP is crucially important process for every
organization. Nearly every successful organization
follows it. But if it is not carried out properly and
hidden challenges are ignored then it becomes
difficult to achieve the desired results. So the
improvement of the S&OP process must
be continuous for the sustainable
operational management. At the same
time various functions that can be
integrated with S&OP for improvement
in the performance of the organization
must be combined and synchronized
with S&OP. This will make sure that with
the change in the technology the
organization is changing & is capable of
enhancing its S&OP process for better &
sustainable performance.
ReferencesBower, P. (2005). 12 Most Common Threats to Sales and Operations Planning Process. Journal of Business Forecasting
S & OP
Finance Pre S&OP
Sales Marketing Demand Planning
Product/
Brand Management
CPFR
Customer trends of POS Data representing
Demand
Demand Planner
Customer Segment 1
Demand Planner
Customer Segment 2
Demand Planner
Customer Segment n
Business Intelligence
Consensus Demand Plan
Figure. 3. Monthly Synchronized Schedule of S&OP & CPFR with the help of BI
Opsessia
4
In this Issue
Faculty Room :Relevance of Operations Management to Management Education - 5
Club Room :India: An emerging face as a Global Supply Chain Management Hub - 7
Class Room :
Achieving Operational Excellence through Financial Instruments - 11
Build Operate Transfer- A new schema in Infrastructure Development - 18
“Going Green” Operational Strategy of European Airlines a lesson for the-
India's Airline Industry - 21
Impact of GST on Supply Chain Industry - 25
Role of Information Technology in Supply Chain - 28
JIT and supply chain disruptions - 31
Improvement of S&OP and its Synchronization with advanced functions-
A key to sustainable operations management - 33
ADAPT TO THRIVE Mass-Lean-Agile-RAM - 15
37
OpsessiaClass Room
Methods & Systems, Vol. 24, No. 3.pp.4-14.
David, A. (2007). Planning process particulars : Meeting your just-in-time customers' demand. APICS magazine.
Gips, J. (2002). Sales and operations planning across the supply chain. APICS International Conference Proceedings
Raekar, R.H. (2002). Marketing : a key collaboration for effective sales and operations planning. APICS International Conference Proceedings
Stahl, R.A. (1999), Sales And Operations Planning – A Fundamental That Still Works. APICS International Conference Proceedings
Wood, C.B., & Boyer, J.E. Jr. (2002). Sales and Operations Planning at Elkay Maufacturing: A Case Study. APICS International Conference Proceedings
Oliva, R., & Watson, N. (2006). Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning. Harvard Business Working Paper. No. 07-058
Mazel, J. (2009). New research tells how to put muscle into S&OP Process, Supply chain strategy
Williams, M.K., Combining CPFR with S&OP to attain optimum customer service. Williams supply chain group
Hymanson, J., Whitepaper on Enhancing Sales and Operations Planning with Forecasting Analytics and Business Intelligence
A Guide to CPFR Implementation. (2001, April). Report by Accenture, ECR Europe.
S&OP Process is a Strategic Driver for Improving Business Performance. (2008, December). Research Brief, Aberdeen Group.
S&OP's Impact on Global Supply Chain
Transformation. (2008, February). Research Brief, Aberdeen Group.McCarthy, T. and Golicic, S. (2002), “Implementing Collaborative Forecasting to Improve Supply Chain Performance,” International Journal of Physical Distribution & Logistics Management. 32:6, p. 431-45
Sneha RamtekeIIM Kozhikode
Akshay JadhaoIIM Kozhikode
3
Opsessia
Team Genesis, the Operations Club of IMI has taken the initiative to come up with the very first issue of “Opsessia” a magazine dedicated to the field of Operations Management. In today's dynamic global environment, operations management has assumed centre stage as every firm tries to achieve Operational excellence to reduce cost, improve quality and achieve efficient delivery.
This is the inaugural issue of a proposed Biannual Operations magazine. The Genesis team had held a competition calling for articles from the MBA student fraternity to contribute towards making of this inaugural edition of the magazine a success. The response was overwhelming and the quality of articles received was brilliant. However due to space constraints we have not been able to print all the received articles in our magazine. This inaugural issue contains the Top 8 articles which were meticulously selected by the Genesis team members assessing the quality of content and style of presentation.
The magazine contains articles and write-ups relevant to the field of Operations written by students from across the top business schools in India. Time and again it proves the enthusiasm of the students toward the field of Operations management and clearly emphasizes the importance of Operations Management in the current business scenario. This issue also contains some articles written by our distinguished faculty from the field of Operations Management and a few written by our Genesis club members.
I am glad to present to you this magazine and hope that you will have a pleasant reading experience as you go through its pages.
Pradip K Bhaumik,Professor, Quantitative Techniques and Operations Management & Former Acting DirectorInternational Management Institute.
A Word from the Prof P.K Bhaumik
Opsessia
38
Strategy Room
“The best CEOs I know are teachers, and at the core of what they teach is strategy”
--------------------------------------------------------------------- Michael Porter [Harvard Professor]
650 students....250 teams.... 38 top B-schools....Seven rounds........120 Hours..........and finally teams from IMI
and SPJMIR battled it out in a mind boggling game of strategy –Ranneeti, designed and executed by Genesis,
The Operations Club of IMI.It was a one of its kind online event that kicked off on 19th October and concluded th
on 4 of November. Ranneeti created much buzz in the B-school events arena and saw participation from top
B-schools like IIMA,IIMC,FMS,XLRI ,JBIMS,IIMK,NITIE,MICA,IIFT,IIMR and SJMSOMto name a few.
“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is
e v o l v e d ” - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - S u n T z u
The importance of strategy in business cannot be overemphasized.This was the driving force behind our
effortsto develop astrategy game, which is based on game theory. The event was an online simulation that
tested one's capabilities in areas like planning, futuristic thinking, creativity and patience. Each team had a
maximum of three members and had to place their warriors in the battlefield which was a 6 X 6 matrix
(provided in an excel file).The warriors included Snipers, Bombers, Commandersand Soldiers each with
different skill sets. It was an intensely interactive game that tested one's strategic skills through combats
between warriors. Initially teams were given a sum of money, and a pool of warriors.Teams had to recruit their
own army choosing from soldiers, snipers, bombers and commanders. With its sheer energy and twists lurking
at every corner, Ranneeti11' did manage to sweep the participants off their feet. The one team that survived till
last would be christened the 'Lord of Strategy'.
With each round, the difficulty level increased and so did the excitement. In theinitial two
rounds,Commanders and Bombers were the most powerful units, in thelater stages, Snipers and finally in the
knockout stages the Soldiers reigned supreme. Constraints were introduced in the form of walls inside the
battlefield in order to enhance the difficulty with each successive round. The idea was to give the players a feel
of real life warfare where not only rules but also the game changes. Real business world is dynamic and shoots
up new challenges, reverses the conventions and again brings them back and tests your strategic and intuitive
abilities.
The following is the list of colleges whomade it tothe top 16:
XLRI,SPJIMR,IMI,XIMB,IIM Calcutta,BIM Trichy,MDI,IIT Delhi and IIT Madras.
Eventually, team 'Chanakya' from SPJIMR emerged as deserving winners of a close fight against team
'Whistleblowers' from IMI and took the crown of 'Lord of Strategy' in the finals.
Ranneeti 2011Strategy
Opsessia
A Word from the Director General
Dear Friends,
It gives me immense pleasure to pen down my thoughts for the inaugural issue of
“Opsessia-obsessed with operations” magazine. This initiative taken by Team
Genesis, the Operations Club of IMI, will provide a forum for dissemination of ideas
and best practices in Operations Management.
Ever since its inception, International Management Institute (IMI) has been a centre
for nurturing the very best of the managerial talent in the country. To achieve this,
the Institute has taken a number of initiatives to groom future leaders who are value-
driven and yet conscious of the fact that to achieve sustainable organisational
growth, one cannot overlook the societal and environmental concerns. As part of these initiatives, students are
encouraged to come forward to implement ideas which can help them in exercising their managerial talent and at the
same time provide value addition to management education. The progress of IMI has been noteworthy, with its students
performing remarkably well in the corporate world.
I believe “Opsessia” is a platform where students can share their views and come up with novel ideas to contribute to the
all pervasive world of Operations Management. This will enhance the awareness regarding this subject and will enthuse
the readers to be part of Operations function of an organization. It is a manifestation of the students' creative ability and
their unfettered ambitions. Entirely a student-driven initiative, it displays the potential of young innovative minds that are
always searching for newer horizons to explore.
I wish the young, enterprising minds a bright and rewarding future.
Dr.Pritam Singh (Padma Shree)
Director General
International Management Institute
2 39
OpsessiaStrategy Room
1
From the Editor's Desk
We are what we repeatedly do. Excellence, then, is not an act,
but a habit. – Aristotle
Welcome to the inaugural edition of “Opsessia”- the Biannual
Operations magazine of IMI. It gives us immense pleasure to
bring out this issue, which is dedicated to the world of Operations
management. This magazine is inspiredby the insightful
thoughts of highly intellectual professors and inquisitive students
studying across B-schools in India, thus blending experience and
new thinking from the future leaders.
The articles in this issue are on different aspects of Operations
Management and cover a myriad of topics like Build-Operate-
Transfer, Sales and Operations planning, Green Strategy, JIT,
Impact of GST on SCM, changing trends in Global SCM and
achieving operational excellence through Financial Instruments.
This is just a glimpse of what we aim to bring to you in the future. I
hope that “Opsessia” will help you gain more insight into major
developments in the field of Operations Management across the
globe.
Wishing you all an exciting reading experience.
Team Genesis.
Looking forward for to your feedback and suggestions at [email protected]
For more information on Genesis, the operations club of IMI visit our website
www.imigenesis.com
TEAM GENESIS
Senior Genesis Team
Ambuj
Atreya
Richa
Sonali
Vijish
Junior Genesis Team
Alisha
Anubhav
Jai Shivam
Mithilesh
Ratan
Shilpa
Shishir
Srikant
Sumant
Tarun
Opsessia
40
Genesis Room
Top
Line
(Left to
Rig
ht) : V
ijish, Ta
run
, Atre
ya, A
mb
uj, M
ithile
sh, R
ata
n, A
lisha
,B
otto
m Lin
e (Le
ft to R
igh
t) : Rich
a, S
on
ali, S
rikan
t, Sh
ishir, A
nu
bh
av, S
um
an
t, Sh
ilpa
No
t in th
e P
ic : Jai S
hiva
m