supply chain practices

8/14/2019 Supply Chain Practices

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India n Su pp ly Ch ainndia n Su pp ly Ch ainPracticesractices Dr. B.S. Sahay

Dean (Research & Consultancy)Mana ge ment Devel op ment In stituteGurgaon, India

Con feren ce onWinning wit h Inte lli gen t Supp ly Ch ain s ( WISC 2004)

FICCI, 24 September 2004


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Pr esentati on A gend ar esentati on A gend a

Some Facts The Dynamics of Supply Chain Supply Chain Practices in India

Supply Chain Processes

Inventory Management Manufacturing Management Outsourcing Customer-Supplier Involvement E- Supply Chains Supply Chain Implementation

Supply Chain Framework Recommendations


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Some F ac tsome F ac ts GDP : Rs. 27.55 Lakh Crores*

Inventory tied up : Rs. 1.17 Lakh Crores

Logistics Cost : 14% of our GDP

1% Reduction in LC1% Reduction in LC : Rs. 27550 Crorers: Rs. 27550 Crorers 2% Reduction in LC2% Reduction in LC : Rs. 55100 Crorers: Rs. 55100 Crorers

* Economic Survey 2003-04* Economic Survey 2003-04


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Logis tic s C ostogis tic s C ost

13.5281.5Taiwan

12.487.0Singapore

12.4468.7Korea

10.53996.2Japan

14.0460.0India

14.51237.1China Mainland

As ia n Regi on10-11393.0ustral ia

Logis tic s Cos t as% of GDPGDP (US D b)*ou ntry

* World Competitiveness Year Book 2003


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08.710445.6USA

14.4637.3Mexico

11.8729.3CanadaNor th Am eric an Regi on

12.21555.2UK

12.1654.0Spain

12.2418.8Netherlands

12.61186.0Italy

11.81987.0Germany

11.71419.3France

Eu rope an RegionLogis tic s Cos t as% of GDPGD P (US D b)*ountry

* World Competitiveness Year Book 2003

Log isti cs C os tog isti cs C os t


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In tern ational Co mpa ri son ofn tern ational Co mpa ri son ofCusto mer Ori en tatio nusto mer Ori en tatio n

74.4357.7062.6269.8459.67USA

66.5054.0057.0058.5063.00Thailand

57.1447.1459.2948.5760.71South Korea

74.7668.4469.7863.1172.89Netherlands

72.2089.7693.1781.4692.68Japan

52.4341.0830.2734.0541.08India

75.8378.6188.0671.3992.50Germany

66.0945.5644.6466.9655.94France

66.4562.5062.1958.0668.13Canada

51.8339.1536.3456.6252.39Brazil

Managing

Distribution

After-Sales

Service

On-Time

Delivery

Product

Design

Product

Quality

Parameters

Note: Companies are rated 0=poor to 100=excellent


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Elements o f L ogi sti cs co stlements o f L ogi sti cs co st TransportationTransportation 35%35%

InventoriesInventories 25%25%

LossesLosses 14%14%

PackagingPackaging 11%11% Handling and WarehousingHandling and Warehousing 9%9%

Customers' shoppingCustomers' shopping 6%6%


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The D yn amic s o f the S upp lyhe D yn amic s o f the S upp lyChainha in

OrderS

ize

Time

Customer

Demand

Retailer OrdersDistributor Orders

Production Plan


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The D yn amic s o f the S upp lyhe D yn amic s o f the S upp lyChainha in

OrderS

ize

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

Customer

Demand

Production Plan


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Tra di ti on al Pl anni ng Ap pr oac hra di ti on al Pl anni ng Ap pr oac hCha ract er ized by Sequ en tial , Deco mp ose d, Slo wSales & Distribution

(Demand)

Manufacturing

(Capacity)Procurement

(Material)

CU

S

T

O

M

E

R

Optimize to

Mfg objectives

Optimize to

Logistics objOptimize to

Sales & Mktg obj


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Gl oba ll y In tegr ated P lan nin gl oba ll y In tegr ated P lan nin g

The sum of the local optima do notequal the global optimum.

(Goldratt, Theory of Constraints, 1986)


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Supply

Sources:plantsvendorsports

RegionalWarehouses:stockingpoints

FieldWarehouses:stockingpoints

Customers,demandcenterssinks

Production/purchasecosts

Inventory &warehousingcosts

Transportationcosts

Inventory &warehousing

costs

Transportationcosts


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Wha ts New i n S upp ly Ch ain ?ha ts New i n S upp ly Ch ain ? Global competition Well informed more powerful Customers Customer Expectations

Shorter product life cycle New, low-cost distribution channels Internet and E-Business strategies


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Wha ts New i n S upp ly Ch ain ?ha ts New i n S upp ly Ch ain ? Global competition More powerful well informed customers Customer expectations

Shorter product life cycle New, low-cost distribution channels Internet and E-Business strategies


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Resea rch Pr ojectesea rch Pr ojectIndian Supply Chain Management Practices

Detailed Survey Questionnaire

1756 organisations

Received 153 responses Major sectors represented in the all-India study - AgriProducts, Automotive, Chemicals/Fertilizers, ComputerHardware, Consumer Durables, Engineering, FMCG,

Metals, Oil/Gas, Pharmaceuticals, Retail,Telecommunications, Textile/Apparel


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Pr of ile of Respo ndi ngrofi le of RespondingCompaniesompaniesNorth38%

East10%

West33%

South19%


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Respo ndents by Owner sh ipespo ndents by Owner sh ip

Public Limited(77%)

Public Sector(5%) Private

(18%)


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Pa rti ci pa ti on bya rti ci pa ti on byMan agemen t L evelan agemen t L evel

Vice President

17%

Director/GM

28%

Sr.Manager

25%

Manager16%

CEO/COO/CFO/President

14%


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Bu si ness O bjecti vesu si ness O bjecti ves

4.02Increase earning per share

4.27Deliver Highest Value to Shareholders

4.28Increase Return on Investment

4.37Increase turnover (sales)

4.46Maximize Profit

4.82Maximize Customer Satisfaction

Weigh ted Score forImpor ta nceOve ra ll Bu sin es s Obje cti ves


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Supp ly C hain Ob jecti vesupp ly C hain Ob jecti ves

3.43Having Products in Stock

3.62Expanding Width/Depth of Distribution

3.64Reducing/Rationalise Supplier Base

3.68Reducing Warehouse Cost

3.96Reducing Transportation Cost

4.28Reducing Lead Time

4.33Reducing Order to Delivery Cycle Time

4.45Improving On-Time Delivery

4.52Reducing Inventory Cost

4.56Expanding Sales Revenue

4.93Enhancing Customer Service

Wei gh ted Scor eup ply Chain Ob jec ti ves


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Supp ly Ch ain Pr oc essesupply Chain Processes

0 1 2 3 4 5

Customer Service

Demand Management

Inventory ManagementOrder Processing/Fulfillment

Manufacturing

Product Development

Transportation

Distribution Management

Import Export Management

Promotion Planning

Warehousing

Criticality Score

Critical Processes


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Inventory M anagemen tnventory M anagemen tThe Indian ScenarioInv entor y Over al l Industry Se ctorAverag es [as number of days of sales] Average Lowers Highers Lowers Highers

Raw Material 33.41 1 120 CDs 25.0 Engg 42.2

Work in Progress 14.25 0.1 210 FMCG 4.4 Engg 20.7

Finished Goods 16.09 1 40 Auto 9.9 CDs 23.3

Goods in Transit 6.44 - 85 Auto 4.08 Elec 11.0

Accounts Receivables 46.51 2 145 FMCG 16 Engg 72.0

Accounts Payables 45 2 127 Elec 25 CDs 60.0

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

Inv. at Distributors 16.77 3 45 Elec 3.0 Engg 23.4

Inv. at Retailers 13.48 1 45 Chem 8.6 Auto 30.0


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Manufacturing Managementanufacturing ManagementWhat is the penetration level of

Inventory Replenishment Processes?

Pull16%

Push84%


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Lo gis tics Cos to gis t ics Cos tThe Indian ScenarioSup ply Chai n Co st Typ e Over al l Industry Se ctorAverag es [as a % of gross sales] Average Lowers Highers Lowers Highers

Cost of Material 52.92 15 90 CDs 35.5 Elect 69.5

Cost of Labour 8.90 0.51 70 CDs 4.9 Elect 12.9

Cost of Prod OH 11.78 0.5 40 Elect 3.5 Chem 12.1

Storage Cost 3.52 0.16 12 Elect 0.8 Auto 5.2

Inbound Transp Cost 3.38 0.12 20 CDs 1.3 Chem 4.0

Outbound Transp Cost 3.38 0.12 20 Auto 1.8 Chem 4.9

Warehousing Cost 2.06 0.1 8 Elect 0.3 Engg 3.1

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

Distributors Margin 6.35 0.1 20 Elect 2.0 CDs 9.7


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Order FulfillmentOrder Fulfillment

Shipment Accuracy v/s OTOFR Matrix

for Order Processing

29.7%Hopefuls

50.8%Leaders

17.6%

Laggards

1.9%

Hopeless

0 90 100

0

90

Timeliness

(On-time Order Fill Rate)

C o m

p le t e

ne s

s

(S h

ip m

e nt

Acc

u ra

cy

)


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Outsou rcin gutsou rcin gWhat is the extent of outsourcing

of supply chain activities?

0 10 20 30 40 50 60 70 80 90 100

Transportation

Warehousing

Manufacturing

Information Systems

Import/Export Mgmt

ProcurementCustomer Service

Order Processing

Inventory Management

Percentage Number of Respondents

YesNo


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Outsou rcin gutsou rcin gWhat are the major reasons for

outsourcing of supply chain activities?

Process Effectiveness24%

Lower Cost27%Lack of Internal

Capability

11%

Investment Reasons

12%

Strategic Reasons26%


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Cu sto mer-Sup pl ier I nvo lvemen tu sto mer-Sup pl ier I nvo lvemen tWhat is the level of customer & supplier

involvement in supply chain activities?

Customer Supplier Involvement

1.50

1.80

2.10

2.40

2.70

3.003.30

3.60

1.50 1.80 2.10 2.40 2.70 3.00 3.30 3.60

Customer Involvement

S

upplierInvolvemen

t

1

3

4

5

6

2

8

9 107

11

12

1 Import-Export Management

2 Warehousing Management

3 Merchandising

4 Distribution Management

5 Promotions Management

6 Inventory Management

7 Manufacturing (Planning)

8 Transportation Management

9 Order Processing/Fulfilment

10 Product Development11 Settlement and Payment

12 Demand Management


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e-Enablement of Supply Chainse-Enablement of Supply ChainsWhat is the usage pattern of

IT Applications?

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

Materials Accounting

ERP/MRPII

Sales & Distribution

CAD/Drafting

Shop Scheduling & Loading

Warehouse Management

Supply Chain Management

Process Control & Optimisation

Demand Management

Engineering Data Management

Manufacturing Execution System

Computer Aided Process Planning

% Respondents using it


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Align in g S uppl y Ch ain Str ategylign in g S uppl y Ch ain Str ategywi th Bu si ness Str ategyi th Bu si ness Str ategy

26%

Doers

27%

Leaders

13%

Laggards

34%

Dreamers

Business Strategy

S u

p p ly

C ha

inS

tra t e

g y


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Fr am ewor k f or Sup pl yr am ewor k f or Sup pl yCh ain S tra tegyh ain S tra tegyBusiness

Objectives

Management

Processes

Focus of Top

Management

Supply ChainObjectives

Supply Chain

Processes

Importance to

Top Management

Business

Strategy

Supply Chain

Strategy


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Align in g S uppl y Ch ain Str ategylign in g S uppl y Ch ain Str ategywi th Bu si ness Str ategyi th Bu si ness Str ategyBusiness Objectives

ManagementProcesses

Focus of Top Management

Supply Chain

Objectives

Supply ChainProcesses

Importance to TopManagement

BusinessStrategy

Supply ChainStrategy


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Su pp ly Ch ains I mp lementati onu pp ly Ch ains I mp lementati onWhat are the benefits achieved by

supply chain implementation?

Measurab le Ind icators Ex te nt o f I mp ro veme nt1. Sales Revenue Increased 20.2%

2. Profits Increased 15.5%

3. Order to Delivery Cycle time Reduced 32.8%

4. Inventory Reduction

a. Raw Material 25.1%

b. WIP 38.7%

c. Finished Goods 32.1%

5. On Time Delivery Improved 33.4%

6. Customer Base Increased 27.7%


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How to ac hieve th e des ire d res ul t?ow to ac hieve th e des ire d res ul t?Su pp ly Cha in: A Pa ra digm S hiftu pp ly Cha in: A Pa ra digm S hift Companies will collaborate with SC partners and

synchronised operations.

Technology will be key enabler for innovativeSC strategy

SC restructured and reskilled to achieve thegoal


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Th an k Yo uh an k Yo u

Ind ian Supp ly Chai n Pract ice snd ian Supply Chai n Pract ice s


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Bul lwh ip E ff ect: V ari abi l ity -ul lwh ip E ff ect: V ari abi l ity -Co ntr ib uting Fa cto rso ntr ib uting Fa cto rs1. Demand forecasting

2. Lead time

3. Batch ordering4. Price fluctuation

5. Inflated Orders supply shortage is suspected.


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Ho w to Co p wi th Bul lwh ipo w to Co p wi th Bul lwh ipEffect?ffect? Reducing uncertainty

Make information at each stage available to others.

Reducing demand variability Regular low price; no promotion

Reducing lead time. Strategic partnerships

Vender Managed Inventory Incentive to make customers demand dataavailable.

supply chain practices

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