minip ( pulak mehta & sankalp rajoria ).pdf

MINI PROJECT REPORT (MED320)

SUPPLY CHAIN PERFORMANCE AND BRAND PERFORMANCE

Submitted by:-

2012ME20790 PULAK MEHTA

2012ME20799 SANKALP RAJORIA

Supervised by:-

PROF. SIDDHARTH MAHAJAN

Mechanical Engineering Department

Indian Institute of Technology Delhi

May 2015

INTRODUCTION Supply chain management is becoming irreplaceable in today's

competitive business environment. Every company is trying to optimize

its supply chain performance to increase the value of its products. Value

can be provided in a product in various forms like price, utility, brand.

Compared to the first two parameters, brand can help increase the

profits of the company by the largest quantum.

Supply chain management are the functions within and outside a

company that enable the value chain to make products and provide

services to the customer (Cox et al., 1995). It consists of four basic

processes sourcing, operation, logistics, marketing which include

managing supply and demand, sourcing raw materials and parts,

manufacturing and assembly, warehousing and inventory tracking,

order entry and order management, distribution across all channels,

and delivery to the customer. Over the years supply chain management

has seen radical transformation in its objectives. Initially in 1950's, with

the experience from the world war, supply chain management mainly

included logistics : how to transport goods. Slowly by 1970's, due to

competition from local and international firms, it started to even

included warehousing along with logistics. These days it encompasses

many operations. Monczka and Morgan (1997) state that integrated

supply chain management is about going from the external customer

and then managing all the processes that are needed to provide the

customer with value in a horizontal way. It included planning, sourcing,

making and delivery

But the biggest ideological change is that in today's competitive

business environment, companies don't compete with each other but

their supply chains compete with each other. Factors leading to change

is the competition from companies to supply chains of the companies

can be attributed to :

1) Vertical integration by companies to increase the bottom line. Eg )

TATA Nano was able to produce car at 1 lakh due to vertical integration

possible by various companies in the TATA group

2) Competition from local as well as global players in sourcing as well as

manufacturing. Eg ) Cost of electronics have reduced significantly due

to increase manufacturing at scale from China and south east Asia

3) Maximizing performance in a single area can have negative impact at

the overall product. Eg) When Apple would be choosing its supplier, it

would prefer higher quality standard over cost due to its luxurious

appeal.

4) Constantly changing consumer preferences. Eg) Initially consumers

preferred small screen smart phones but then it changed to larger

screen. Hence, Apple had to increase the screen size of its iPhone

Due to all the above mentioned factors, companies these days are

making a constant effort to innovate and refine their supply chain to

produce the right product, at the right price, at the right place and at

the right time to the customer.

A product or a company in known by its brand. The brand has many

intangible promises of satisfaction associated with it like utility, product

quality, availability and servicing it provides to its customer ( Healey,

2008 ). Brand can add value to the product as it helps in creating an

emotional attachment to the product and give a sense of assurance to

the product. To help strengthen the brand and reach the customer at

an emotional level companies have gone far beyond the main stream

marketing communication about their product and services (Mitchell,

1999).

Companies make a serious efforts in creating a brand which includes

marketing about its products and services, making positive logo and tag

line and maximizing its P.R. reach to communicate its core values to all

its consumers. Following are examples of this branding effort :

1) Amazon.in is using "Aur Dekho" to emphasis on the largest product

variety available on its website.

2) Maruti tries to communicate itself as the leading manufacturer of

fuel efficient cars.

3) Louis Vuitton brands itself as an upscale luxurious fashion company.

All its efforts are made to emphasis on creating an luxurious, rich and

clothing line for the elite.

Creating a positive brand for a particular company can help in targeting

and servicing the needs of its customers more efficiently. This helps it in

commanding a better price than its competitor.

PROJECT OBJECTIVE

The main objectives of the project are:

i. To study and quantify the supply chain performance of major Indian companies.

ii. To study and quantify the brand performance of the chosen companies.

iii. To try and find out any relation between supply chain performance and brand performance.

To obtain a diverse set of organization, we have chosen 11 major

companies listed in India across 4 major sectors analyze the different

performance co-relation. The companies chosen are:

a. FMCG : HUL, ITC, Nestle India, Britannia

b. Oil : Reliance Industry, ONGC

c. Pharma : Sun Pharma, Lupin

d. Automotive : M&M, Maruti, Tata Motors

LITERATURE REVIEW Li, Raghunathan, Raghunathan, & Rao (2006) conceptualized and developed

five dimensions of SCM practice (strategic supplier partnership, customer

relationship, level of information sharing, quality of information sharing, and

postponement) and tested the relationships between SCM practices, competitive

advantage, and organizational performance. The results indicated that higher

levels of SCM practice can lead to enhanced and improved organizational

performance. Also, competitive advantage can have a direct, positive impact on

organizational performance. This study deeply analyzed the impact of SCM

practices on organizational performance. The results of the study indicated that

both inter firm system integration and supply chain responsiveness have a direct

positive effect on brand equity.

Gunasekaran, Patel, & McGaughey (2004) created a framework for supply

chain performance measurement around supply chain activities and processes

such as plan-source-make/assemble-deliver. They believed that unless supply

chain performance is measured, it cannot be improved. Further, all participants in

the supply chain should be involved and committed to common goals, such as

customer satisfaction and enhanced competitiveness.

Glaster (2008) studied the role of branding in the value chain attempting to

demonstrate that the brand is the one mechanism that unites both the supply

and demand sides of the value chain. The author critically evaluated

design/methodology/approach - Mission, vision and transaction models as

aligning mechanisms to the value chain. He found that the brand strategy

management should be both a demand and supply chain priority, in contrast to its

general demand chain focus. This study did not empirically demonstrate the role

that the brand plays in value chain dynamics, particularly the behavior of

participants in the supply chain.

METHODOLOGY

Measuring and Ranking the Brand Performance

To measure the value of the brand we looked at the financial numbers.

The most valuable brands are ones that generate massive earnings in

industries where branding plays a major role. To determine the best

brands, we started with more than 10 national brands. Our first step in

valuing the brands was to determine earnings before interest and taxes

for each brand. We averaged those earnings over the past three years

and subtracted from earnings a charge of percentage growth rate of

the brands capital employed, figuring a generic brand should be able to

earn at least %age of growth rate on this capital. We applied the

maximum corporate tax rate in the parent companys home country to

that net earnings figure. Next, we allocated a percentage of those

earnings to the brand based on the role brands play in each industry.

(Brands are crucial when it comes to beverages and luxury goods, but

not so much, say, with airlines, when price and convenience are more

important.) To this net brand earnings number, we applied the average

price-to-earnings multiple over the past three years to arrive at the

final brand value. The ranking is done on the basis of their value.

Measuring and Ranking the Supply Chain Performance

The Financial Component consists of the 3 year Weighted Average

Return on Assets (ROA), 3 year Weighted Average Revenue Growth and

the Inventory turns.The ROA is supposed to represent overall

operational efficiency and productivity, Revenue growth gives an idea

of the market and organizational factors and innovation. The inventory

turns does not particularly give a good idea of supply chain

performance, but is widely understood and hence is still included.

COMPONENT PARAMETER WEIGHT IN FINAL SCORE

HOW IS IT ARRIVED AT

Financial Inventory Turns 30% Cost of goods sold/Annual avg. inventory

3 yrs. weighted Revenue Growth

20% ((change in revenue 2014-2013)*50%) + ((change in revenue 2013-2012)*30%) + ((change in revenue 2012-2011)* 20%)

3 yrs. weighted ROA

50% ((2014 net income/2014 total assets)*50%) + ((2013 net income/2013 total assets)*30%) + ((2012 net income/2012 total assets)*20)

The ranking is done on the basis of supply chain performance.

After tabulating the data between supply chain performance and brand

performance we find the correlation factor, gamma and z-score using

the following formulae

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CALCULATION OF BRAND VALUE

Year Company ITC HUL BRITANNIA NESTLE RELIANCE ONGC TATA MOTOR MARUTI M&M SUN PHARMA LUPIN

2014 Cost of raw material 2014 13,522.04 14621.7 3835.34 4640.46 334283 667.26 26040.59 31495 4640.46 1264.59 3223.46

Annual avg. inventory 2014 7359.54 2747.53 366.86 844.1 42932 5882.54 3862.53 1705.9 2803.63 918.38 1372.24

Inventory turn around 1.83734853 5.321761728 10.45450581 5.49752399 7.786336532 0.113430593 6.74184796 18.46239522 1.655161344 1.376979028 2.349049729

2013 Cost of raw material 12531.44 13633.79 3539.83 4059.29 310428 612.89 33764.4 32721.8 4059.29 1077.87 2924.46

Annual avg. inventory 6600.2 2526.99 331.49 735.93 42729 5704.39 4455.03 1840.7 2419.77 868.76 1330.83


2012 Cost of raw material 9933.19 11701.45 3193.06 3909.06 279737 656.14 41081.79 28330.6 39029.06 1257.79 2377.44

Annual avg. inventory 5637.83 2516.65 382.28 745.58 35955 5165.44 4588.23 1796.5 2358.39 640.07 1123.56


CALCULATION OF INVENTORY

TURNAROUNDS

Company

ITCH

UL

BRITAN

NIA

NESTLE

RELIAN

CEO

NG

CTA

TA M

OTO

RM

ARU

TIM

&M

SUN

PHA

RMA

LUPIN

Revenue 201432238.6

28019.136307.39

9854.84390117

83890.2734319.28

43700.640508.5

2828.798939.38

Revenue 201329901.27

25810.215615.49

9101.05360297

83005.3344765.72

43587.940441.16

2432.147122.51

Revenue 201225173.82

22116.374974.19

8326.55329904

76515.0954306.56

35587.131853.52

4015.565384.83

Revenue 201121458.98

19735.514217.54

7490.82248170

68338.9247088.44

36618.423460.26

3107.574494.88

Revenue 201018567.45

17769.123404.7

6260.21192091.9

60251.7735373.29

29317.718516.33

1845.093690.09

Revenue 200914985.81

20

,50

4.2

83112.38

5566.85151662.8

64003.992

5,6

60

.67

20

,72

9.4

013081.08

2774.652954.7

7.8168258.558319

12.3212768.282451

8.2765051.066124308

-23.33580250.258558

0.16651416.30868289

25.50884

18.7792316.70184

12.8925519.301571

9.212688.482300681

-17.568485322.4823

26.95978-39.4321091

32.26991

17.3113512.06384

17.94055311.15672

32.9346811.96414869

15.32885778-2.81634

35.776529.21864994

19.79919

15.5731111.06633

23.87405619.65765

29.1933913.42226129

33.1186327324.90202

26.7003868.42376253

21.8095

23.90021-13.3395

9.392169312.45522

26.65721-5.862478261

37.8502198141.43053

41.55047-33.50188312

24.88882

Weighted revenue grow

th 201413.00445

11.7024813.616514

9.16304113.48899

5.470582096-13.8726753

6.31070115.32649

2.16843870426.39524


th 201317.69764

14.1833416.603253

11.9293320.32542

10.51484722.438141241

15.3766529.55292

2.7342929426.43661


th 201218.10765

6.68392718.010927

13.966730.5568

8.83625707825.17006267

14.3485434.20846

28.436077121.42021

Change in

Revenue 2014

Change in

Revenue 2012

Change in

Revenue 2011

Change in

Revenue 2013

Change in

Revenue 2010

CALCULATION OF WEIGHTED REVENUE

GROWTH

YearCom

panyITC

HU

LBRITA

NN

IAN

ESTLERELIA

NCE

ON

GC

TATA

MO

TOR

MA

RUTI

M&

MSU

N PH

ARM

ALU

PIN

2014N

et income

34474.1529035.22

6334.7910008.08

39864190499.19

37209.5644505

41553.95127.1

9430.97

Total Asset

26260.753277.05

858.082856.78

282572136725

33669.3122663.1

20536.359816.89

7118.44

RoA/100

1.3127638.86017

7.38251683.503273

1.4107590.661906674

1.1051476851.963765

2.0234340.012947074

1.324865

2013N

et income

31775.827056.64

5681.129092.63

37161288465.09

46571.6544376.9

41168.262678.84

7328.26

Total Asset

22301.52674.02

833.173558.24

233488124453.22

33403.5319968.1

17885.997832.01

5402

RoA/100

1.42482810.11834

6.81868052.555373

1.5915680.710830061

1.3942134262.22239

2.3017040.342037357

1.356583

2012N

et income

26148.4622384.82

5037.518457.58

33696884199.96

54919.2436545.1

33024.914140.22

5388.32

Total Asset

18817.933512.93

548.192848.6

221596117456.75

30637.6416265.7

15345.317918.42

4727.06

RoA/100

1.389556.372122

9.18935042.96903

1.5206410.716859269

1.7925414622.246759

2.1521170.522859358

1.139888

2011N

et income

22385.2820505.75

4283.527560.1

25446571758.68

47718.5137183.2

24214.123,299.71

4511.46

Total Asset

15988.452659.52

882.762244.83

20951097504.43

34651.4914037.7

12634.496,731.06

4132.12

RoA/100

1.4000917.71032

4.85241743.367783

1.2145720.735953023

1.3770983592.64881

1.9165090.490221451

1.091803

2010N

et income

18664.9617988.32

3378.576371.13

19912763985.77

37200.7830180.6

18825.112641.98

3673.99

Total Asset

14117.72582.85

825.87855.41

190861103688.25

31405.0612656.5

10698.715747.47

3437.36

RoA/100

1.3220966.964524

4.09092237.448042

1.0433090.617097598

1.1845473312.384593

1.7595680.459677041

1.068841

2014W

eighted RoA136.174

874.0011757.47326

311.2054148.6978

68.75742093132.9346163

209.7951213.2652

21.36566157129.7385

2013W

eighted RoA140.9297

851.287713.66288

284.1952149.4891

71.76634161151.0288823

231.4984217.9789

42.59207762123.8618

2012W

eighted RoA137.9222

689.2062686.85849

398.4459133.3354

70.26350612154.6309705

239.4941200.2925

50.04315226111.1253

CALCULATION OF WEIGHTED RETURN

ON ASSETS

YEARITC

HULBRITANNIA

NESTLERELIANCE

ONGCTATA M

OTORM

ARUTIM

&M

SUN PHARMA

LUPIN

2014Current Assets

3,181.26-2,558.91

-157.79-1,376.46

45,388.00-2,099.60

-6,361.88-866.6

2,051.111,053.53

3,508.27

Current Liabilities6,921.52

6,925.65660.98

1,361.0080,844.00

36,062.3413,334.13

6,996.908,678.28

807.891,367.80

Working Capital

-3,740.26-9,484.56

-818.77-2,737.46

-35,456.00-38,161.94

-19,696.01-7,863.50

-6,627.17245.64

2,140.47

Annual Revenue32238.6

28019.136307.39

9854.84390117

83890.2734319.28

43700.640508.5

2828.798939.38

Days of working capital

-42.3466-123.554

-47.3811-101.389

-33.1732275-166.039615

-209.47536-65.6782

-59.713831.69504

87.39661

2013Current Assets

2,596.83-2,165.18

-26.55-956.86

53,170.0073,381.33

-6,739.401,148.40

231.192,030.64

2,460.19


6,260.09576.9

1,348.7679,620.00

30,575.8116,580.47

5,845.807,662.13

674.841,332.67

Working Capital

-3,807.60-8,425.27

-603.45-2,305.62

-26,450.0042,805.52

-23,319.87-4,697.40

-7,430.941,355.80

1,127.52


25810.215615.49

9101.05360297

83005.3344765.72

43587.940441.16

2432.147122.51


-46.4788-119.148

-39.2235-92.4675

-26.795255188.229055

-190.13997-39.3355

-67.0676203.4698

57.78087

2011Current Assets

1,178.45-1,288.20

-339.57-1,064.61

49,238.0017,304.25

-8,912.101,986.20

-45.92,254.47

1,974.96


5,499.42882.53

1,259.5166,159.00

30,715.2220,280.82

5,338.006,721.40

598.671,193.81

Working Capital

-4,505.90-6,787.62

-1,222.10-2,324.12

-16,921.00-13,410.97

-29,192.92-3,351.80

-6,767.301,655.80

781.15


22116.374974.19

8326.55329904

76515.0954306.56

35587.131853.52

4015.565384.83


-65.3319-112.02

-89.6762-101.879

-18.7210977-63.9743618

-196.20863-34.3778

-77.5445150.5063

52.9487

CALCULATION OF WORKING CAPITAL

YearCom

panyITC

HULBRITANNIA

NESTLERELIANCE

ONGCTATA M

OTORM

ARUTIM

&MSUN PHARM

ALUPIN

2014Inventory Turn Around

1.8373495.321762

10.454515.497524

7.7863370.113431

6.74184818.4624

1.6551611.376979

2.34905

Weighted Revenue Growth ( 3 year avg. )

13.0044511.70248

13.616519.163041

13.488995.470582

-13.87276.310701

15.326492.168439

26.39524

Weighted RoA ( 3 year avg. )

136.174874.0011

757.4733311.2054

148.697868.75742

132.9346209.7951

213.265221.36566

129.7385

Ranking Value71.2391

440.9376384.5963

159.084679.38261

35.5068665.71533

111.6984110.1944

11.5296170.853


1.8986455.395269

10.678545.515864

7.2650420.107442

7.57893917.77682

1.6775521.240699

2.197471


17.6976414.18334

16.6032511.92933

20.3254210.51485

2.43814115.37665

29.552922.734293

26.43661


140.9297851.287

713.6629284.1952

149.489171.76634

151.0289231.4984

217.978942.59208

123.8618


430.0988363.3557

146.138280.98913

38.0183778.27575

124.1576115.4033

22.2151167.87748


1.7618824.649614

8.3526735.242979

7.7801970.127025

8.95373415.76989

16.549031.965082

2.115988


18.107656.683927

18.0109313.9667

30.55688.836257

25.1700614.34854

34.2084628.43608

21.42021


137.9222689.2062

686.8585398.4459

133.335470.26351

154.631239.4941

200.292550.04315

111.1253


347.3348349.5372

203.589275.11312

36.9371185.03562

127.3477111.9527

31.2983260.48149

SC PERFORMANCE

RESULTS

RANKING FOR 2014

COMPANY

BRAND RANKING SUPPLY CHAIN RANKING

ITC

2

7 HUL

6

1

BRITANNIA

9

2 NESTLE

5

3

RELIANCE

3

6 ONGC

1

10

TATA MOTOR

10

9

MARUTI

4

4 M&M

7

5

SUN PHARMA

11

11

LUPIN

8

8

RANKING FOR 2013 COMPANY BRAND RANKING

SUPPLY CHAIN RANKING

ITC

2

7 HUL

6

1

BRITANNIA 9

2 NESTLE

5

3

RELIANCE

3

6 ONGC

1

10

TATA MOTOR 10

9 MARUTI

4

4

M&M

7

5 SUN PHARMA 11

11

LUPIN

8

8

RANKING FOR 2012 COMPANY BRAND RANKING SUPPLY CHAIN RANKING

ITC 2 7

HUL 6 1

BRITANNIA 9 2

NESTLE 5 3

RELIANCE 3 6

ONGC 1 10

TATA MOTOR 10 9

MARUTI 4 4

M&M 7 5

SUN PHARMA 11 11

LUPIN 8 8

CORELATION FACTOR

SC RANKING(X) BRAND RANKING(Y) DIFFERENCE BETWEEN RANKING SQUARE OF RANKING

7 2 -5 25

1 6 5 25

2 9 7 49

3 5 2 4

6 3 -3 9

10 1 -9 81

9 10 1 1

4 4 0 0

5 7 2 4

11 11 0 0

8 8 0 0

7 2 -5 25

1 6 5 25

2 9 7 49

3 5 2 4

6 3 -3 9

10 1 -9 81

9 10 1 1

4 4 0 0

5 7 2 4

11 11 0 0

8 8 0 0

7 2 -5 25

1 6 5 25

2 9 7 49

3 5 2 4

6 3 -3 9

10 1 -9 81

9 10 1 1

4 4 0 0

5 7 2 4

11 11 0 0

8 8 0 0

SUM:

594

CORRELATION COEFFICIENT(X,Y) = 0.900735294 = 0.9

GAMMA & Z-SCORE

G=(sum(Na)-sum(Ni)/(sum(Na)+sum(Ni))

Z=G*sqrt(sum(Na)+sum(Ni))/33(1-G^2)

COMPANY Na (AGREEMENT)

Ni(INVERSTION)

ITC 0 3

HUL 2 1

BRITANNIA 1 2

NESTLE 3 0

RELIANCE 2 1

ONGC 2 1

TATA MOTOR 2 0

MARUTI 3 0

M&M 1 2

SUN PHARMA 3 0

LUPIN 1 2

SUM 20 12

G 0.25

Z 1.98

OBSERVATION

1) There was a positive correlation between supply chain performance and brand performance.

As the supply chain performance increases, the brand generally sees a positive movement in

the brand performance.

2) The correlation factor (row) comes out to be 0.9. Note : +1 implies complete linearity

3)The gamma value comes out to be 0.25.

4) Since the z-score is +1.98. The critical value for z-score for 0.05 is +-1.96, hence null

hypothesis is rejected and the given set can be accepted

5) Supply chain performance does not show lot of variation when compared from an year to

year value as but the brand performance can show a lot of variation from year to year

REFERENCES Research Paper:

Cox, J.F., Blackstone, J.H. and Spencer, M.S. (Eds) (1995), APICS Dictionary (8th ed.), American

Production and Inventory Control Society, Falls Church, VA.

Monczka, R.M. and Morgan, J. (1997), Whats wrong with supply chain management?, Purchasing, Vol.

122 No. 1, pp. 69-73

Healy, M. (2008). What is branding: essential design handbook. Switzerland: Rotovision SA.

Mitchell, A. (1999). Out of the shadows, Journal of Marketing Management, 15(1-3), 25-42.

Li, S., Raghunathan, B., Raghunathan, T., & Subba Rao, S. (2006, April). The impact of Supply Chain

Management practices on competitive advantage and organizational performance. Omega, 34(2), 107-

124.

Gunasekaran, A., Patel, C., & McGaughey, R. (2004). A framework for supply chain performance

measurement [Electronic version]. International Journal of Production Economics, 87(2004), 333-347.

Glaster, S. (2008). The role of branding in the value chain. International Journal of Physical distribution

and logistics management, 38(9), 726-736.

Books :

William et al. Statistics for Business and Economics

Alan Agresti, Analysis of Ordinal Categorical Data ( Wiley Series in Probability and Statistics )

Website:

All financial data taken from moneycontrol.com