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Introduction:
It is currently common knowledge that companies must adopt the latest techniques and
technologies in order to compete effectively in a more demanding environment. Increased
competitiveness has inspired new breeds of customers: ones that evaluate their total interface
with the supplying organization and not just the product they receive.
The new customer places greater emphasis on the services received, such as reliability, timeliness
and efficiency in order to rank their satisfaction from the services of their suppliers. Customer
satisfaction requires service quality and those companies offering higher service quality are able
to ask higher prices for comparable product. The higher price is further justified if it acts as a
guarantee for good service as customers are willing to pay more for increased responsiveness.
The key to providing high level of customer satisfaction is therefore in providing what the
customers wants, when the customer wants it. Feedback on customer requirements should enable
companies to set these objectives aimed at providing high levels of customer satisfaction and
therefore companies need to continuously monitor their performance and compare it with others
in order to establish how they rank against their competitors and define the areas in which they
are leading or lagging.
Benchmarking:
A key method of monitoring performance is benchmarking. Xerox Corporation, the pioneer of
competitive benchmarking, proved its use initially in their manufacturing operations. Since then
it has been used for comparing many other operations, including functions such as distribution
and inventory management. Benchmarking has been defined by David Kearns, chief executive
officer of Xerox as:
The continuous process of measuring products, services and practices against the company’s
toughest competitors or those companies renowned as industry leaders is benchmarking.
Types of benchmarking:
There are four types of benchmarking;
1. Internal benchmarking: this is the most accessible as the comparison is normally
conducted between very similar operations in other parts of your company. It has been the
advantage of no confidentiality problems and therefore should always be performed first before
embarking on any other type of benchmarking.
2. Competitive benchmarking: this type of benchmarking involves the investigation of
competitors services , processes and products, possibly through reverse engineering and therefore
the data for this can be the most difficult to collect.
3. Parallel Industry Benchmarking: Companies in parallel industries having similar
problems may have very different approach to solutions than companies in your industry,
therefore this type of benchmarking will often provide worthwhile results.
4. Best practice Company Benchmarking: this considers the practices of identified leaders
irrespective of the business sector where benchmarking is performed against very specific
activities. This type of benchmarking opens great opportunities for companies to collaborate and
exchange information as it can only be advantageous to both parties. Information is therefore
easier to obtain as neither company is perceived as threat.
The scope of
The concept of logistics supply chain aims to place emphasis on customer and supplier interfaces
in order to involve them in as many of strategic and management decisions as possible, thereby
strengthening the links and integrating the supply chain. Within the traditional supply chain
structure, interfaces of particular interest include:
• The supplier interface: this is becoming increasingly important as the key to effective
purchasing and supply of the right raw materials at the right time and of the right quality and
quantity in order to prevent holding high raw material stocks and facilitating the move towards
‘just in time’ purchasing.
• The customer interface: close links with customers reduces the need for forecasts as
demand is relayed in advance, thereby preventing high finished goods stock from building up
and becoming obsolete. Customers want high availability of stocks from the suppliers, but this
can’t always be made practically possible, therefore it is essential that close links with customers
are maintained in order to determine their requirements and satisfy their needs and expectations.
• Transportation/distribution: Distribution methods are of vital importance to a company
wishing to use a third party distribution company, depends on a number of factors, all revolving
around the supply of high level of customer satisfaction. But the fact still remains that the
transportation and distribution methods should be carefully analysed and efficiently managed in
order to maintain the effectiveness of the total supply chain management.
• Warehousing/ inventory control: the warehouse must be effectively managed and located
according to customer demands, therefore being able to meet customer requirements. Inventory
control systems must be up-to-date and well managed in order to provide current information on
stock levels and stock availability. Demand distortion can occur if this is not done.
• Communication/data management: increased communications with customers and
suppliers will enable customer requirements to be identified and relayed through the supply chain
to the suppliers, thereby allowing a company to order only goods that are required by the
customer. Direct computer links across these interfaces can provide more up to date information
and should therefore be considered carefully.
While typical logistical supply chain structure hold true for most industries, many variations in
number of echelons can occur for different industries.
Benchmarking Methodologies:
Various authors and practitioners have suggested different benchmarking methods. We found the
one proposed by Xerox – the pioneer in benchmarking – to be most relevant in present context. It
encompasses the fundamental principles of any benchmarking exercise and was used as starting
point for the survey. The process can be separated in to five main stages of planning, integration,
action and maturity. These can be further split into ten steps outlined in the diagram.
• Planning:
What to benchmark: initially, one must decide what is to be benchmrked. Any activity
that can be measured can also be benchmarked. It is important to identify areas that could
make significant improvements to customer service since customer satisfaction is vital to the
success of any company. Most importantly, each benchmark should be aimed at contributing
to customer satisfaction or profit through improved performance.
Whom to benchmark against: here it is
necessary to home in those companies with world
class practices, but the problem is actually in
identification of these companies, i.e. who is best
practice? The search should start by identifying
competitors of your processes or operations,
followed by a search for similar practices in
dissimilar industries. Consumers can provide
useful information as to who they perceive to be
best practice; similarly many consultancy
associations have up-to-date surveys on the best
company practices.
• Analysis:
Data collection methods: A great deal of
information is currently available from a wide
range of sources. In order to identify best
practices companies, bench measures should be
used before benchmarking. The bench measuring
should be seen as a prerequisite towards best
practice benchmarking as it involves measuring
success against a number of companies in order
to identify that is best practice.
Determine current performance levels: before
extending the information search outside the
company, it is essential to have a clear
knowledge of your company’s present
performance in order to be in a position to
identify any gaps.
• Integration:
Project future performance levels: from the
data collected, performance levels of best
practice companies can be quantified and compared with your current performance, thereby
identifying the gap to be negative, positive, or zero. The areas in which gap is largest
highlights the areas requiring the most improvements in order to achieve a leading edge.
Communicate benchmarking findings: results of the benchmarking survey should be
reported to all employees within the company in order to gain acceptance. New ideas of
change are most likely to be accepted if the benefits are explained to employees providing a
vision of the future state of the company.
• Action:
Establish functional goals: Previous performance goals should be revised in order to set
new standards for expected performance, based on best practice performance.
Develop action plans: Design specific plans for implementation and continuous
assessment of any achievements.
Implement actions: put the actions into practice and ensure they reach the new standards
by monitoring the progress.
Recalibrate benchmarks: Continue to benchmark, to ensure your company can keep up
with improvements and make the change being proactive rather than reactive.
• Maturity:
This stage is only achieved when all the best practices are implemented and benchmarking is
adopted as a way of life for continuously researching new ideas and maintaining best practice
status.
Having entered the relevant data, a participant can then start benchmarking! The participant
chooses the required peer group of comparable data. If this is done at a very high level, then the
analysis will also include the 500 or so records already in the higher level GCI performance data.
If the analysis selected is at a very detailed level, then the Glosup systems will only produce a
benchmark report if sufficient data exists, so that no single company can be identified.
Drawbacks of Benchmarking:
At first sight, benchmarking appears to provide the answer to every company’s problem,
however complex. But is this within the capabilities of benchmarking? Benchmarking has a
number of drawbacks which must be overcome in order for it to be effective. These include:
• An accurate understanding of the technique: one of the main reasons for companies
failing to adopt benchmarking is the lack of understanding of the technique. Initially, the
technique might appear as if it can provide quick hit results in short term, but if technique and the
business itself have not been investigated thoroughly, then the results may have a negetive
repercussion on the long term effectiveness of the company.
• Identification of the areas to be benchmarked: it is essential that a company should
identify its needs with regards to providing high levels of customer service and distinguishthe
value added activities from those that are non value added. Identification of suitable measures of
performance is critical to long term success of a benchmarking project enabling successful
comparisons to be made, thereforecare must be taken when defining these measures in order to
obtain the maximum attainable benefit from the benchmarking project.
• Identification of suitable benchmark companies: having defined the suitable performance
measures likely to have the greatest impact on the company, other companies performing similar
practices should be identified, therefore compareable companies can only be identified through
considerable research, both internal and external to the company.
• Data comparability and relevance: this was again identified as one of the main difficulties
encountered during a benchmarking project. Verification of data and performing of comparisons
can prove to be particularly difficult if the performance measures are not clearly defined.
• Resources and time: these form another two difficulties encountered. The benchmarking
program should be resourced effectively in terms of the number of people required in the form of
benchmarking team and the time required to carry out the necessary work if the maximum
benefit is to be achieved from the benchmarking project.
• Support from entire organization: in order for a benchmarking exercise to be approved,
the potential benefits must be emphasized to the entire work force. Without this support a project
could fail to even get off the ground.
The above factors, if not considered carefully, can provide considerable hindrance to a
benchmarking project and could result in a lot of wasted time and effort.
Trouble in conducting supply chain benchmarking:
Dr. Skip Grenoble & Dr. Bob Novack of Penn State University researched and found three main
reasons which stop people from taking up benchmarking.
The number one reason, surprisingly, wasn’t time (that finished at number four) — it was a lack
of resources. Without enough people (and the right people) to participate in benchmarking
activities, and certainly without a sufficient budget, companies’ efforts to benchmark are doomed
before they even get started.
The number two reason was that internal measures and processes are difficult to define — If you
don’t know what you want to measure, then how can you ever discern if what you’re doing is up
to industry standards?
And the third most prevalent deterrent to benchmarking is the difficulty in identifying proper
benchmarking partners.
Conclusion:
In today’s competitive environment customers expect much more than just a good product. If the
service and reliability is not taken care of he may switch to some other option. Also providing
such service in a way superior to your competitors makes it more challenging. Benchmarking is
the need of the hour in present scenario. Benchmarking helps you to beat the best in the business
i.e. it leads to continuous improvement by measuring the products and services provided against
the industry’s best people. Care should be taken while selecting the measures of performance for
every particular case as per the requirement and need. The methodology explained above is a
typical case of benchmarking an aftermarket supply chain the process may see minor
modifications when adapted to any particular situation. There are a lot of benefits in
implementing benchmarking but it is not a very easy task, it needs an elaborate and careful study
about your business and how others are doing it in same or even different industry. The changes
require changes in culture which sometimes become difficult to inculcate. Looking at the long
term benefits of such improvement process benchmarking has become the need of the hour.
1. Which of the following are types of benchmarking?
a. Internal
b. Competitive
c. Parallel
d. Best practice company
e. All of above
Ans. (e) all of above
2. State true or false. “People buy products not only for their obvious tangible qualities but
for other intangible qualities such as reliability, service and price”
Ans. True
3. Supply chain management:
a. Means procurement only
b. Means delivery to end customer only
c. Means transportation of good only
d. Means linking the supplier to the customers
Ans. (d) links suppliers with customers
4. State true or false. “there are standard best indicators of performance that can be used for
any firm”
Ans. False
5. In aftermarket supply chain which of the following can be considered as logistics sectors
with reference to selecting the measures of performance.
a. Stock holding
b. Warehousing
c. Distribution
d. Customer ordering
e. All of above
Ans. (e) all of above
6. Five phases of benchmarking methodology may be scheduled as:
a. Planning-analysis-integration-action-maturity
b. Planning-integration analysis-action-maturity
c. Planning-integration-action-analysis-maturity
d. Planning-analysis-action-integration-maturity
Ans. (a) Planning-analysis-integration-action-maturity
7. Benchmarking helps in:
a. Identify the key criteria important to a particular market sector
b. Evaluate importance of each factor
c. Score the companies and sector as a whole to identify the performance gap
d. All of above
Ans. (d) all of above
8. Which of these is not an input to benchmarking process?
a. Customer demand
b. Political change
c. Cost saving
d. Identification of best practice company
Ans. (c) it is a benefit gained out of benchmarking
9. Benchmarking helps us:
a. To know our competitors better
b. Become proactive
c. In continuous improvement
d. All of above
Ans. (d) all of above
10. Some of the limitations of benchmarking can be:
a. Data comparability and relevance
b. Resources and time
c. Identification of suitable benchmark companies
d. All of above
Ans. (d) all of above
11. Scope of SCM lies in:
a. Procurement order
b. Manufacturing order
c. Factory order
d. Distribution order
e. Customer order
Ans. All of above
12. In planning stage the questions to be answered are:
a. What to benchmark
b. Whom to bench mark against
c. Both (a) & (b)
d. None of above
Ans. (c)
13. The tasks involved in action stage are:
a. Establish functional goals
b. Recalibrate benchmarks
c. Communicate benchmarking findings
d. Both (a) & (b)
Ans. (d)
14. The most critical stage in methodology is:
a. Internal evaluation of company
b. Analysis of customer requirements
c. Identification of critical measures of performance
d. Identification of best practice companies.
Ans. (c)
15. State true or false. “Glosup analysis is consistent with the GCI Global KPIs but can
provide a deeper assessment by working at a more detailed product level”
Ans. True
Part II: Case Study
Brightpoint: A bright point in your supply chain
Brightpoint: A Bright point in your supply chain
“Brightpoint India Pvt. Ltd (BPI) started its operations in 2003 with the distribution of Nokia
2280 CDMA. It is a subsidiary of Brightpoint Inc, IN, USA. Brightpoint is globally present in 28
countries and deals in distribution of wireless devices. Brightpoint boasts of efficient and flexible
systems as its strength. BPI operations working efficiently till now may fall short at standards
with the company’s ambitious growth and expansion plans in the pipeline. Its staff may get
overburdened due to some redundant and unproductive procedures adopted as standard operating
procedure over here”
Robert Laikin, in 1986 started with Century Cellular Network Inc., with retail of cell phones (car
phones) and charging customers as less as $500 from its competitors in a small city of
Indianapolis, IN, USA. The wireless technology has proved itself to be the fastest growing
consumer product of the century, with this tremendous growth manufacturers became short of
supply, their focus was on developed urban markets as a result retailers like Cellular Inc had to
wait for quite a long before they were supplied the phones.
Dismayed by this practice, Laikin decided to establish the wholesale business in order to supply
retailers like Century at cheaper prices by making bulk purchases from manufacturers. Hence in
1989 Laikin in partnership with Daniel Koerselman founded Wholesale Cellular USA. Its
strategic location in the Midwest helped Wholesale to grow even faster with manufacturers now
preferring new markets outside big urban markets. Laikin kept wholesale cost to minimum and
made sure to pay the manufacturers promptly for all orders, so that he would be on the top of
their priority list whenever there was a shortage of supply. Wholesale was able to take over the
major market share due to its enormous buying volume, undercutting the competitor’s prices.
Within a year of its incorporation, Wholesale had sales of $12 million.
With an efficient management, sufficient financial resources & great flexibility wholesale was
able to survive in an Industry driven by rapid technological change, cut throat competition,
constantly falling prices and hairline profit margins. In april 1994, Wholesale went public, in july
J Mark Howell was appointed the executive VP in charge of Wholesale’s financial operations,
administration, information services and HR. by this time Wholesale was focused on
international expansions and started operations in Chile, Argentina, Columbia, Mexico, Israel,
India (a JV with Pertech Computer Ltd), Latin America. By 1995 10% of Wholesale’s total sales
were from international markets.
Wholesale maintained its market position as independent supplier by not striking any contractual
deal with a single manufacturer. Apart from distribution Wholesale also provided services like
custom phone labeling, branding & packaging. As Wholesales’ business expanded far beyond
distribution, Laikin started searching for a new name to reflect the company’s growing scope and
potential. In September 1995 Wholesale was officially named as ‘Brightpoint Inc.’
On the strength of Brightpoint’s 91% return on equity, Forbes Magazine ranked it among the top
three ‘Best Small Companies in America’ in 1995. Year 1996 may be considered as one of the
most glorious years in Brightpoint’s history where it saw a lot of acquisitions and expansions. By
1996 Brightpoint has become the second largest US cell phone distributor with the acquisition of
Allied Communication Inc. (the then number four).
Brightpoint Inc Today:
Today Brightpoint operates in three regions with its 28 subsidiaries. The three regions are:
Americas (North America, Latin America, Columbia & Guatemala)
Asia – pacific (Australia, Hong-Kong, India, New Zealand, Philippines, Singapore)
EMEA – Europe Middle East Africa (Austria, Belgium, Denmark, Finland, France, Germany,
Great Britain, Italy, Netherlands, Norway, Portugal, Russia, Slovakia, South Africa, Spain,
Sweden, Switzerland, UAE)
It is one of the world’s largest distributors of wireless networks in the world. It has been included
in the list of ‘Fortune 500 Companies’ in 2009 and has been accredited as Fortune world’s most
admired companies in 2007, 2009 & 2010. They support 25000 B2B customers globally and
handled 84 million wireless devices worldwide in 2009.
Brightpoint India Pvt. Ltd:
In late 1995 Brightpoint formed a JV with Pertech Computer India, the then leader in Indian
Computer Industry & started with the distribution of mobile phones, pagers & other wireless
network devices, but due to financial crunches and various irregularities in PCL, it wound up in
1998.
Brightpoint Inc. registered its subsidiary Brightpoint India Pvt. Ltd. on 3rd July 1998 with
registered office at New Delhi. But it was only in 2003 when company started its operations in
India with the Distribution of Nokia 2280 CDMA (Reliance Infocom’s own a phone in just Rs.
500 scheme). Persequor Limited provided management services to BPI and had 15 % shares in
the Indian Subsidiary, these services were terminated in 2006 and Brightpoint had acquired the
full ownership of Brightpoint India Ltd. Since its inception BPI has catered to various
manufacturers, it attained a landmark in May, 2007 when it was able to sell more than 200000
devices in a single month which included brands like Nokia, Haier, O2, ZTE etc. But in 2009
Nokia stepped out of CDMA business in India.
BPI was also a distributor for Samsung CDMA but due to Samsung’s demand of exclusive
distribution which is against the global policies of Brightpoint Inc the distribution contract was
not renewed after April 2010. Presently the company is working for Micromax, Motorola, HTC,
Garmin (navigation devices) & it is aggressively looking for new brands as the capacity at
present is significantly underutilized. Despite of a very efficient sales team the sale have reduced
from average 1 lakh pieces per month to 40000 pieces after Samsung contract has expired. A
similar downturn was seen when Nokia left CDMA business. This trend raises some questions on
the existing business model.
Along with Distribution services BPI provides:
• Integrated Logistic Services (ILS): ILS includes all the outward supply chain activities
such as kitting, packaging, branding, labeling, shrink warping etc along with the core
logistic services i.e. distribution (storage and transportation)
• Repair Logistics: BPI also provides repair services for various manufacturers.
Brightpoint Inc is taking its Indian business very seriously and has planned to invest a
huge amount towards providing these additional services also. For this BPI is installing a
fully dedicated facility at Delhi. Earlier BPI was operating Nokia Care centers throughout
the country.
In 2009, BPI received highest average audit score based on the timeliness and quality of financial
results they report to corporate finance team. Also BPI finance team is only second finance team
to score an outstanding grade in internal audit.
Brightpoint India is constituted of seven departments: Human Resource, Operations, Finance,
ILS, Information Technology, Customer Support Service and Channel Sales.
Market in India is divided in two segments RDS (regional distributors) and OT (organized
traders). OT includes all the retail chains. BPI caters to both the segments.
Operations at Brightpoint India Ltd.:
The hierarchical structure for operations department at
BPI:
The
major
functions
performed by operations department are:
• Raising the Purchase Order
• Looking after Imports
• Processing Customer Order (release, invoice and dispatch, arrangement of various road
permits and other required forms as per state regulations)
• Maintain Stock Count
• Material Receipt
• Internal Stock Transfer
• Purchase and Sales Return (reverse logistics)
The ERP system used in Brightpoint globally is IFS (Industrial finance system) along with it a
serial tracking software developed by Brightpoint IT team is also used to keep a track of location
of the material based on its ESN. The ERP system supports all the above listed functions except
the internal stock transfer which is done with the help of XPP.
Third party logistics service provider:
It must be noted here that BPI has appointed a third party logistics service provider (Gati) to look
after their warehousing and transportation operations. To reach to its customers faster and
efficiently currently BPI is working with warehouses in 22 locations with a pan India presence.
Company consider it wise to operate with 3PL as the space requirements at most of the locations
is less (due to high cost but less volume nature of product) so it is better to have shared services.
Along with the cost benefits this model come with some disadvantages also as the BPI
management control is reduced on material movement.
Although deliveries at customer end are going fine with an average of 93% deliveries on time
(see annexure for sample hotline report – May 2010) frequent problems are faced in case of
internal stock transfers where in product has to be transferred to distant locations ultimately
leading to delay in fulfilling customer order. One can easily find operations people arguing and
shouting on phones to Gati people due to such delays. Moreover due to difference in culture and
systems of the two organizations the process adaption and standardization becomes difficult. 3PL
is using some other software and different reporting methods so integration of data becomes
difficult a lot of work has to be done manually in order to create the required reports which can
be of more than 2000 rows of a excel sheet hence increasing the risk of error. The relations with
current service provider are not going so smooth and management is considering switching to
other 3pl.
Customer order processing:
Customer order (for detailed procedures refer annexure) is obtained in two forms – online and
manual. In case of online order the CO is directly punched into IFS taking care of the delivery
address and tax rates but for manual CO the operations executive manually enters the part code,
quantity and other required details for invoicing taking care of the stock available at respective
site. This means if the stock is not available at a given site the order will not be punched or only
partially punched such that no partially delivered back orders are created in the system. Then
sales department maintains a record of partially fulfilled customer orders and a list is provided to
the operations to punch those orders again (it is quiet possible that stock again is not available).
This reserve an employee for unproductive work (maintaining pendency) moreover it is waste of
time for operations also as they again have to punch the order in to the system.
E.g. on 18 may 2010 an order from The Mobile Store was received at 6:20 P.M so it was
punched on 19 may morning. But some of the orders (such as order no.94683 Orissa, 94690 AP,
94730 Chandigarh, 94731 Rajasthan) were cancelled due to unavailability of stock at respective
locations.
Then again these orders had to be punched on 21 may according to a pendency list provided by
sales.
What happened here is the operations executive had to practically punch an order twice, because
in first instance when order was cancelled the executive had already invested the time which he
takes for order punching but had to cancel it when he found stock deficient then again same order
is punched on a later date.
Also here is manual interference in order processing which could lead to errors such as one could
miss out a partially delivered order.
The possible solution could be that order must be punched as it is received and if the stock is
deficient it may go to partially delivered list (as it is done in online order case or sometimes in
manual case also).
But the problem here is once an order is approved by finance with status ‘released’ the
money of the customer is blocked for that order even if the stock is not available and hence
can’t be used for orders of location where the stock is available (e.g. in case of a OT if order
is for say Delhi and Orissa and stock is unavailable at Orissa but it is released by finance with
amount say 5 lakhs and now Delhi order is punched with value say 5 lakhs where stock is
available but the credit limit available with OT is 5 lakhs only so both the orders would be
blocked one due to stock unavailability and other due to finance unavailability)
Hence it is considered better to waste some time than to make customer suffer.
Manual Tax Rate Selection:
While punching a customer order the tax rate has to be selected manually. Due to a very complex
tax structure of India, the tax rate varies with state and also with product; rate also varies with the
cost of the product. Presently IFS selects the tax rate options based on the location but executive
has to select the tax rate product wise. This poses a great threat of manual error as executive will
have to remember the tax rates. Moreover say, if a new executive is appointed for order
punching, this threat becomes even more serious.
On closely looking at the customer order processing system, it is seen that each invoice is first
saved in a folder on local hard disk and than manually mailed to the respective location
warehouses. As no integrated warehouse management system has been installed in the
warehouses.
It was often said that there remains a delay in order processing due to which customer orders do
Manua Onlin
l e
Order punched Order appears in
(planned) in IFS by customer order list of
entering product IFS and can be directly
details and quantity planned there
Operations
check if stock N
is available at o
the respective
location in CO will be
IFS? released/partially
delivered in IFS
Yes
Stock is reserved and it gets
adjusted in IFS Is stock N
Yes receive
Now the CO is ready for o
report picking or getting d?
invoiced Released CO awaits in
back order list of IFS
Invoice is generated and
saved in the dated folder
under invoice folder on
common hard drive
Details of dispatched
material are sent by 3PL
through mail in form of a
file containing the ESN of
the products.
A dispatch order is
automatically generated in
XPP and it is fulfilled by
uploading the serial no. file
sent by 3PL & hence the
ESN is updated in XPP
Annexure – 2
Purchase Process:
Approv
ed by No
CFO? Goes to sales
dept. for
resolution
Does
product
No
code
exist in Operations
IFS? generate code and
maintain system
Yes generated form
Operations generate
PO based on Sales
dept. requirements
Director Operations
Sign the PO
PO is mailed to
supplier & respective
warehouse is
informed of the PO
raised
Annexure – 3
Receipt Process: