SUPPLY CHAIN

INFRASTRUCTURE –PROSPECTS

AND CHALLENGES IN

RECESSION HIT ECONOMY

Presented by:-Rajeev Kumar

Research Scholar, MBA ( FMS BHU)JRF-UGC

Introduction

Recession & it’s Impact

Role of Supply Chain Infrastructure

Components of Supply Chain Infrastructure System

Prospects and Challenges of Supply Chain Infrastructure

Future Prospects & Challenges ahead

Supply Chain Network Infrastructure Planning

2

3

India has re-emerged as one of the fastest growing economies in the world. Failing to improve the country’s infrastructure will slow down India’s growth process. The demand for infrastructure investment during the 11th Five Year Plan (2007-2011) has been estimated to be US$ 492.5 billion.

As per the Andersen Consulting Report on Supply Chain Infrastructure the supply chain as a concept and a reality is moving far beyond the confines of an individual organization. It has become a dynamic process that involves the simultaneous acquisition and continuous reevaluation of partners, technologies, and organizational structures.

Introduction

4

In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales." 

A recession has many attributes that can occur simultaneously and includes declines in component measures of economic activity (GDP) such as consumption, investment, governments’ spending and net export activity.

Economist Richard C. Koo (2009) wrote that under ideal conditions, a country's economy should have the household sector as net savers & the corporate sector as net borrowers, with the government budget nearly balanced & net exports near zero. 

What is recession ?

5

Recession & it’s Impact

Employment (Heavy Knock out)

Companies (Barely managed to

survive)

Competitors (Weaker ones

perished)

Diminishing Resources (Financial

meltdown)

During recession, many macroeconomic indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall, while bankruptcies

and the unemployment rate rise.

6

Infrastructure Development in India

Indian government’s first priority is rising to the challenge of maintaining and managing high growth through investment in infrastructure sector.

Physical infrastructure covering transportation, power and communication through its backward and forward linkages facilitates growth; social infrastructure including water supply, sanitation, sewage disposal, education and health, which are in the nature of primary services, has a direct impact on the quality of life.

With the current GDP growth of 8%, in which there is contribution of nearly 57% from services and 16% from manufacturing sector there is a need for proper alignment of resources. To sustain this growth India needs to develop sound infrastructure so that the right input of skilled, qualified and socially contented labor; visible and reliable supply chains; prompt and accurate information for decision making; efficient process and updated technology can be given to the operations of manufacturing and services.

7

Role of Supply Chain Infrastructure

There has been a steady increase in the urban population on account of rapid industrialization, natural growth and migration from rural areas. This has prompted the working out of alternative ways of meeting the increasing transport demand given the constraints of land and capital, and the need to control energy consumption, pollution and accidents.

Every Supply Chain Management (SCM) has three major aspects namely; Quality, Cost and Time i.e to produce and deliver product and services at the right time with the right quality and right cost. Infrastructure plays a major role in order to accomplish the SCM objectives.

8

Infrastructural Factors on Operations of an Organization (Source : http://www.coolavenues.com/mba-journal/operations/infrastructure-development-india?page=0,1)

9

The figure shown depicts the influence of various infrastructural factors on operations of an organization or a project. The output of the well managed operations creates better services and products which are the assets of any country. Infrastructural development in a country helps to run the operations of any company efficiently and effectively. Since cost is a reality and price is a possibility and due to high competition price is decided by the market forces, the controlling of cost is very imperative and is within the scope of a organizations’ SCM practices.

Customer demands for better services, growing dominance of technology, the view of the individual enterprise as just one component of the total value system, the increase in interconnectedness and globalization of business and economics and the widening range of stakeholders to be satisfied are all factors contributing to the substantial supply chain challenges.

10

Components of Supply Chain Infrastructure System

Council of Logistics Management (1991) defined that logistics is ‘part of the supply chain process that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements’.

Johnson and Wood’s definition (cited in Tilanus, (1997) uses ‘five important key terms’, which are logistics, inbound logistics, materials management, physical distribution, and supply-chain management.

Information systems include modeling and management of decision making, and more important issues are tracking and tracing. It provides essential data and consultation in each step of the interaction among supply chain partners and processes. Supply chain infrastructure basically comprises human resources, financial resources, packaging materials, warehouses, transport and communications.

11

Role of Transportation in Supply Chain Infrastructure

Mobility is one of the most fundamental and important characteristics of economic activity as it satisfies the basic need of going from one location to the other, a need shared by passengers, freight and information.

Jean-Paul Rodrigue (1998) defined the economic importance of transportation. He highlighted that the general standpoint and the economic impacts of transportation can be,•Direct impacts related to accessibility change where transport enables larger markets and enables to save time and costs.•Indirect impacts related to the economic multiplier effects where the price of commodities, goods or services drop and/or their variety increases.

12

The supply chain transport infrastructure can be evaluated on following parameters such as:

•Networks. Setting of routes enabling new or existing interactions between economic entities.

•Performance. Improvements in cost and time attributes for existing passenger and freight movements.

•Reliability. Improvement in the time performance, notably in terms of punctuality, as well as reduced loss or damage.

•Market size. Access to a wider market base where economies of scale in production, distribution and consumption can be improved.

•Productivity. Increases in productivity from the access to a larger and more diverse base of inputs (raw materials, parts, energy or labor) and broader markets for diverse outputs (intermediate and finished goods).

13

The major impacts of transport on economic processes can be categorized as follows:Geographic specialization: Improvements in transportation and communication favor a process of geographical specialization that increases productivity and spatial interactions.Large scale production: An efficient transport system offering cost, time and reliability advantages permits goods to be transported over longer distances. This facilitates mass production through economies of scale because larger markets can be accessed.Increased competition: When transport is efficient, the potential market for a given product (or service) increases and so does competition. A wider array of goods and services becomes available to consumers through competition which tends to reduce costs and promote quality and innovation.Increased land value: Land which is adjacent or serviced by good transport services generally has greater value due to the utility it confers to many activities. In some cases, the opposite can be true if related to residential activities.

14

Role of Warehousing in Supply Chain Infrastructure

There is no as such clear cut formula to estimate or forecast the demand at marketplace precisely. When a firm needs an inventory, it must be stored in such a way that the physical attributes of the inventory items can be preserved as well as protected. Thus, the inventory produces the need for warehousing.

The functions of warehousing include stockpiling, stock mixing, trans-loading and contingency protection.

Warehousing can be viewed as a physical system, involving facility space, labor and equipment, where inbound products are put away, stored and protected until the outbound product shipment related processes occur. A warehouse management system is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse .

15

Prospects and Challenges of Supply Chain Infrastructure

According to Obiora Madu (2011) infrastructure is defined as part of a structure, material or economic base of a society or an organization.  Therefore, infrastructure can be seen as the basic structure that fosters the good performance of cities’, states’ or countries’ essential services. 

In this sense, for a country to have a good supply chain infrastructure system in the different modes of transportation, constant investments from both public and private sectors are needed.

Organizations, especially in a competitive and globalised world, require infrastructure compatible with their needs and demands, in order to transmit their products and services to different producers and demand centres in different parts of the globe.

16

Future

Challenges Prospects

17

The major opportunities are highlighted below by Obiora Madu (2011). •Many big Indian corporate such as Tata and Reliance Industries have been attracted by the potential of this sector and have established logistics divisions. They started providing in-house logistics services, and soon sensing the growth of the market, have started providing services to other corporate as well. •Large express cargo and courier companies such as Transport Corporation of India (TCI) and Blue Dart have also started logistics operations. These companies enjoy the advantage of already having a large asset base and an all-India distribution network. •Indian shippers are gradually becoming more aware of the benefits of logistics outsourcing. They are now realizing that customer service and delivery performance are equally important as cost to remain competitive in this global economy. •The Indian economy is growing at over 9% for the last couple of years (compared to the world GDP growth rate of 3%), which implies more outputs and more demand for specialized logistics services.

18

Supply Chain Network Infrastructure Planning

Alan Kosansky and Ted Schaefer(2011) suggested 10 Guidelines for Supply Chain Network Infrastructure Planning.

• Network structure, which determines 75%- 80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures.

• Optimize supply chain infrastructure to realize maximal cost savings.• Understand the changes that can be impacted.• Consider technological analysis to make the supply chain decisions.• Modern infrastructure planning requires a collaborative effort.• The planning process needs to include many different scenarios to ensure a robust

solution.• Consider hybrid solutions to ensure low-cost, high level customer service.• Models and analysis mean nothing without implementation.• Optimized supply chains minimize inefficiencies.• The answer is in the data.

19

20

References

•Argyres, N.S. (1999). The Impact of Information Technology on Coordination: Evidence from the B-2 “Stealth” Bomber, Organization Science, 10(2), 162-180.•De, P. (2004). Transport Cooperation in BIMST-EC: Issues and Way Forward, Research and Information System for Developing Countries (RIS), New Delhi. •Gallaher Michael P., and Alan C. O’Connor (2002). Economic Impact Assessment of the International Standard for the Exchange of Product Model Data (STEP) in Transportation Equipment Industries. NIST Planning Report 02-5. Gaithersburg, MD:NIST.•Koo, Richard (2009). The Holy Grail of Macroeconomics-Lessons from Japan's Great Recession, John Wiley & Sons (Asia) Pte. Ltd. •Kosansky, A. and Schaefer, T. (2011). Guidelines for Supply Chain Network Infrastructure Planning. USA, Industrial week. •Lee, H. I. and S. Whang (2000). Information Sharing in a Supply Chain. International Journal of Technology Management , 373-387.•Planning Commission, (2007). Projections of Investment in Infrastructure during the Eleventh Plan, Government of India, New Delhi. 16.

21

THANK YOU