A REPORT

ON

“SUPPLY CHAIN MANAGEMENT ”

SUBMITTED BY

Jayshree Behra & Shakti Patel

MASTERS OF FASHION MANGEMENT

SEM III

NIFT (GANDHINAGAR)

SUBMITTED ON

10-11-2014

UNDER THE SUPERVISION OF

Mr. Mahesh Shaw sir

SUBMITTED TO

National Institute Of Fashion Technology

(Ministry of Textiles, Govt. of India)

GH-0 Road, Behind Info city

Gandhinagar-382007. Gujarat

http://www.nift.ac.in

June - July 2014

SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) is "the systemic, strategic coordination of the
traditional business functions and the tactics across these business functions within a
particular company and across businesses within the supply chain, for the purposes of
improving the long term performance of the individual companies and the supply chain as
a whole."It has also been defined as the "design, planning, execution, control, and
monitoring of supply chain activities with the objective of creating net value, building a
competitive infrastructure, leveraging worldwide logistics, synchronizing supply with
demand and measuring performance globally

FUNCTIONS:

SCM is a cross-functional approach that includes managing the movement of raw materials
into an organization, certain aspects of the internal processing of materials into finished
goods, and the movement of finished goods out of the organization and toward the end
consumer. As organizations strive to focus on core competencies and becoming more
flexible, they reduce their ownership of raw materials sources and distribution channels.
These functions are increasingly being outsourced to other firms that can perform the
activities better or more cost effectively. The effect is to increase the number of organizations
involved in satisfying customer demand, while reducing managerial control of daily logistics
operations. Less control and more supply chain partners led to the creation of the concept of
supply chain management. The purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving inventory visibility and the
velocity of inventory movement.

Main functions of Supply Chain Management are as follows:

 Inventory Management
 Distribution Management
 Channel Management
 Payment Management
 Financial Management
 Supplier Management
 Transportation Management
 Customer Service Management

EXAMPLE OF SUPPLY AND DEMAND NETWORK

New Trend in Warehousing

“Customers expect a seamless shopping experience where they can choose the most
convenient way to order, receive and return their purchases, and retailers are responding with
a ship-from-store option. More stores will be used as mini-distribution centers where they can
fulfil online orders in-store. Thus retail supply chain managers will become increasingly
reliant on the conversion of brick-and-mortar stores to fulfilment centers providing package
pick-up and ship-from-store services.
This new model will reshape the distribution strategy for many retailers as they meld physical
stores and e-commerce delivery to compete in the race for e-commerce market share.
Depending on specific regional needs, a retailer may use any number of types of fulfilment
facilities
Analysts maintain that while some retailers in some regions will ship only from distribution
centers, in other regions they will use only stores. Other regions may add a new type of
facility, urban fulfillment centers. New fulfillment centers (FCs)—an added layer than can
bridge online sales with existing stores—are emerging in close proximity to a retailer’s
existing distribution center (DC). In this scenario, inventory-replenishment trucks, en-route to
brick-and-mortar’s stores from a DC, can stop by a FC to pick up customers’ online orders.
An FC in near-proximity to the retailer’s existing network cuts transportation costs and gives
a retailer access to more than twice the inventory.

There is no one-size-fits all ship-from-store supply chain strategy. The retailer’s existing
supply chain network, its customers, and the nature of its products all shape where and how
goods are stored and shipped.
As retailers’ Ship from Store strategy evolves, an increasing demand for warehouse space is
expected. To ensure inventory is available when needed, the one million-square-foot e-
commerce fulfillment center will become commonplace. Further, that inventory will be
supplemented by goods in the stores themselves, which will use up to 15 percent of their
space for storing goods for customer pick-up

Global Supply Chain Challenges: Cost, Profitability and Personalization

Global companies are managing multiple supply chains, and they’re counting on those
operations to not only deliver goods on time, but to tailor and respond to divergent customer
and supplier expectations regarding pricing and packages. To do that, supply chain operators
need the capability to personalize offerings for multiple customer segments.
Among the challenges facing today’s supply chain are many that link directly to
monetization. Market volatility, economic contractions and modest recovery cycles affect the
way companies manage distribution, manufacturing, invoicing and materials sourcing.
Expansion into new markets introduces complex taxation, invoicing and localization burdens.
And dispersed market segments demand different pricing models and services. With so many
critical functions in flux, enterprises need to optimize their supply chains simply to remain
competitive.
GLOBALIZATION AND A SHIFTING SUPPLY CHAIN LANDSCAPE

Many businesses are trying to apply outmoded processes and technologies to global supply
chain operations. Often, existing systems are not capable of meeting modern demands. If a
company needs to reroute an inbound container shipment, for example, a lack of visibility
into the overall system can turn a simple decision to redirect a shipment from one port to
another into a problem that ripples across the supply chain, and results in higher costs and
decreased efficiency. As an organization’s logistics expand, so must its ability to quickly see
the cost and service implications of every decision.

That visibility is particularly important in a time when most products have become
commoditized. Gone are the days when pricing, features, and brand recognition were enough
to set a business apart from its competitors. Differentiation in the global marketplace has as
much to do with what happens in the supply chain as it does with product innovation. When
the market dampens the payback for higher prices, businesses must instead meet their
profitability goals by redesigning and enhancing their supply chains, and then use those
improved operations to deliver value-added services to more sophisticated customers.
Increasingly, logistics leaders are charged with delivering legacy products while also
supporting the development, production, and transport of new offerings.
With an optimized global supply chain, an enterprise can address many of the pressures
reported in the PWC study. Such a system delivers:

1. Reduced costs. Companies that can easily access information about their suppliers
make better procurement decisions. Online supplier and buyer community
management is one approach businesses have taken to reduce their supplier sourcing
and procurement costs.

2. Increased transparency. A global business needs a single point of access for its
supplier information and its buyer-supplier communities. With a global view and a
transparent supply base, international supply chain operators can identify reliable
suppliers anywhere in the world.

3. Lower risk. An optimized supply chain allows a company to quickly assess a

supplier’s ability to meet financial, legal, safety, quality, and environmental
regulations and expectations. Those regulations differ based on customer and local
standards, of course, so flexibility becomes essential to risk management.

4. Support legacy and new products. Today’s global supply chain operators require a
billing partner and a supplier settlement platform that can support existing products
and adapt for new offerings. That platform needs to accommodate taxation, invoicing
and other critical functions. As importantly, it must accommodate multiple and fluid
business models to enable the company to reach international markets
SOLVING COMPLEX GLOBAL SUPPLY CHAIN CHALLENGES
As companies look to amplify growth and expand quickly into promising new markets, they
will have to take a hard look at what their current supply chains are capable of, and whether
those capabilities are enough to support global competition. Many will find that in order to
support existing and future business objectives, they’ll have to reconsider their management
processes in favor of more flexible practices.

A LEAN AND AGILE SUPPLY CHAIN:

In today's global, dynamic economy, it is beneficial for companies to operate a supply chain
that is both Lean and agile. Using Lean and agile in combination is known as having a hybrid
supply chain strategy. A hybrid supply chain strategy may be appropriate for a company
attempting to become a "mass customizer"—producing progressively smaller batch sizes
(sometimes as little as one item) specific to customers' sometimes unique needs. A Lean
supply chain focuses on adding value for customers, while identifying and eliminating
waste—anything that doesn't add that value. Being agile and responsive, on the other hand,
implies that your supply chain can handle unpredictability—and a constant stream of new,
innovative products—with speed and flexibility.

An agile strategy uses a wait-and-see approach to customer demand by not committing to the
final product until actual demand becomes known (also referred to as postponement). For
example, this might involve the subassembly of components into modules in a lower-cost
process, with final assembly done close to the point of demand in order to localize the
product.

An agile supply chain must be responsive to actual demand, and capable of using information
as a substitute (to some degree) for inventory through collaboration and integration with key
customers and suppliers.

On some occasions, either an agile or a Lean strategy might be appropriate for a supply chain.
But many companies will probably face situations where a hybrid strategy is a better fit. If so,
they need to carefully plan and execute the combined strategy with excellence, which is often
easier said than done because it involves a lot of moving parts. As in so many aspects of
supply chain and operations management, there is more than one way to accomplish this goal.
One example of a company using a hybrid strategy in its supply chain is Zara, a Spanish
fashion designer and retailer. Zara directly manufactures most of the products it designs and
sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain
economies of scale. A network of dedicated subcontractors performs other finishing
operations that cannot be completed in-house.

As a result, Zara has a supply chain that is not only agile and flexible, but incorporates many
Lean characteristics into its processes.

Some semiconductor manufacturers incorporate a hybrid strategy using a flexible

manufacturing and distribution model. Subcontractors perform distinct manufacturing
processes at separate physical locations. This hybrid approach taps a virtual network of
manufacturing partners and requires responsive, flexible, and information-driven sourcing,
manufacturing, and distribution functions—in many ways, the opposite of Zara's strategy of
shifting processes in-house.

Many organizations can find some form of hybrid supply chain that works well for them. In
today's ever-changing, volatile, and competitive global economy, it may often be in a
company's best interest to operate a supply chain that is both Lean and agile.

SUPPLY CHAIN- A STRATEGIC ADVANTAGE

In today’s world, leading companies have recognized that supply chains are strategic assets,
both for delivering on the customer promise and for fuelling growth. Overall, they give their
supply chains reasonably high marks for client satisfaction and operational efficiency.One of
the research study says that executives in outperforming enterprises, however, rate their
supply chains even more highly. "Sixty-five percent say their supply chains are very effective
at satisfying clients, and 62 percent say they are very effective at generating higher revenues,
compared with just 42 percent and 27 percent, respectively, of executives in other
organizations," the study reports.
AT UNILEVER, FLEXIBLE SUPPLY CHAIN IS THE NEW TABLE STAKES
On any given day, two billion people use Unilever's products to look good, feel good, and get
more out of life. From long-established names such as Lipton, Knor, Lifebuoy, Sunlight, and
Pond's to new innovations such as the Pureit affordable water purifier, Unilever's range of
brands is as diverse as its worldwide consumer base.
The company markets more than 400 brands, ranging from nutritionally balanced foods to
indulgent ice cream, affordable soap, luxurious shampoo, and everyday household care
products. Many of these brands embrace long-standing, strong social missions, such as
Lifebuoy's drive to promote hygiene through hand washing with soap, and Dove's campaign
for real beauty.

In 2013, Unilever reported annual sales of $66.6 billion. Emerging markets account for 57
percent of its business. The company employs more than 174,000 people. "Supply chain is
absolutely critical to Unilever's success. Most importantly, it is about delivering value to
customers. In an increasingly omni-channel environment, it becomes even more important to
create a channel-segmented, responsive, and flexible supply chain—and to do so at the lowest
possible cost. That has become the new table stakes."

Supply chain plays a lead role in supporting the global Unilever Sustainable Living Plan
(USLP). Supply chain has played a significant role in advancing the company's sustainable
sourcing initiative. HUL went from sourcing 18 percent of its commodities sustainably in
2011 to 48 percent in 2013.That strategy includes a big drive to source from small farmers.
Supply chain creates value in three key areas. First, delivering cost effectiveness—the most
obvious and direct benefit. Second, driving brand preference through product and service
quality. Finally, driving growth, which is the most critical role.

Customers are increasingly driving channel-specific business strategies, and adapting to a

highly volatile world. Being a partner of choice as they see opportunities or difficulties in the
marketplace is a huge driver of growth.

A flexible and responsive supply chain enables us to be thought leaders for its customers,
drives overall market development, and makes it possible to achieve consistent top- and
bottom-line growth for us and for our customers.

Supply chain is important to delivering its USLP goals—not only for Unilever, but also for its
customers, through its Joint Sustainability Plan. These wide-ranging partnerships include
building a sustainable future via renewable energy initiatives, cutting greenhouse gas
emissions, and reducing solid waste.

"Supply chain has been a fantastically successful discipline" It was invented for
manufacturing, but has expanded beyond its original borders into areas such as healthcare,
staffing and human resources, and knowledge management. That demonstrates how much
supply chain has evolved, and how effective it is at managing large, complex systems."

SUPPLY CHAIN RELATIONSHIP MANAGEMENT

Supply chain relationship management is a business strategy for improving communication
between companies and their channel partners.

The first ingredient to successful supply chain relationship management is having the ability
to measure a supply chain partner's performance. The next is possessing technology that
assists with automating processes, thereby diminishing busy work. The third is shared
knowledge, for the purposes of openly measuring, managing, and valuing partners. The
fourth is the relationships themselves—which providers truly want to build long-lasting,
beneficial relationships?

Understanding supply chain partners' strengths is the area where one can likely to find mutual
benefits. To determine strengths, have measurements in place to understand key performance
indicators, like tenders offered, tenders accepted, on-time pickups, on-time deliveries, and
any situations where an accepted tender is later rejected. Once those baseline measurements
are in place, one may begin to explore mutual opportunities.

Opportunities often manifest themselves as situations where product needs to move, a

transportation provider has capacity, and the added traffic will benefit their network. Once
one begin to explore these opportunities with supply chain partners, natural fits will become
apparent, that can lend themselves to better overall understanding of capacity levels and the
establishment of commitments. While commitments may not be optimal, they are necessary
to ensure supply chain viability when capacity constraints begin to occur. Without solid
relationships, joint commitments, and a good understanding of what each supply chain
partner values, transportation providers have a tendency to gravitate toward higher-paying
freight when capacity becomes constrained.
The way to ensure that product is picked up and delivered on time is to leverage technology.
Measure provider performance and use TMS tendering technology to eliminate personal
preference, and foster the business relationship by openly discussing challenges and
problems. A relationship based on these fundamental principles builds trust and creates the
foundation of mutual success.
INFORMATION TECHNOLOGY AND SCM
Information technology (IT) includes a set of powerful tools that can lead to the failure or
success of a supply chain process. With the development of information systems (IS) and
information technologies the use of information sharing and decision making is growing at a
very fast pace. IT solutions are no longer likely to provide strategic advantage, but imply the
business basics. The competitive advantage for organization(s) originates from development
of creative information technology strategies and implementing them. IS’s enable existing
strategies to be realized, Information flows provide the linkage that allows the supply chain
to operate efficiently.
Technologies like internet, intranet, extranets and groupwares[20] facilitate the sharing of
information using (distributed) common databases (with access control to the database for
checking unauthorized access). These allows sharing the information not just within the
functional divisions of an enterprise but upstream and downstream the supply chain.
Electronic Data Interchange (EDI) can be used to place orders, inventory database can be
shared between the manufacturer and the supplies for efficient implementation of JIT
inventory; for vendor managed inventory (VMI) this sharing is a must. The internet and EDI
can be used by the customer to monitor the status of the order placed, request changes in the
order and vice-versa, they may be used to inform the customers about the status of their
order, besides being used for billing etc. The internet and EDI can be used not only for
information sharing/exchange but may also be used for marketing of services, products
(especially software) and advertisement etc. The internet is becoming a medium of choice for
product marketing, delivery, billing and customer support.
The above was the description of the technology available, below is the description of the
supply chain management tools. These tools include supply chain configuration tools (for
strategic decision making by determining the number, capacity requirements besides location
of facilities etc.); demand planning tools to assist management in understanding the key
drivers of demand using sophisticated analytical tools and with provision for interfacing with
external data. Supply - planning tools to assist management with decisions such as which
products to make, how to make them, what order to make them in and where to source
materials from? These tools use interactive production planning, Gantt Charts and simulation
and also incorporate advanced constraints such as capacity utilization, customer priority and
due dates. Transportation and distribution planning and management tools to assist in the
planning of how much to move- which item(s) - where? Using which mode of
transportation?, support, carrier preference structure incorporation, consolidation and back-
haul opportunity identification; load creation and sequencing, vehicle-scheduling and
utilization optimization, operation within a warehouse, like order allocation, receiving, radio
frequency/hand held scanning inventory control (cycle counting, aging, lot control, expiry
data tracking etc. And lastly, Enterprise Resource Planning (ERP) software; which provide
the transactional data handling support. ERP grew out of MRP - I and MRP - II by the
addition of the more functional domain modules. Generally ERP’s provide tools for the
management of the operational aspects of the supply chain management with a few additional
decision support tools. But more and more DSS developers are providing
interfacing/integration capabilities with ERP software for advanced tools of decision making
support.

DESIGN OF MULTIPLE CRITERIA DSS FOR TRANSPORTATION

AND DISTRIBUTION
Transportation and distribution management is one of the major component of SCM. The
success or failure of a supply chain depends, to a large extent, on the success of the
distribution channels. The solution to the problem of transportation and distribution in a
supply chain is usually done through the use of some variant of the classical transportation
problem :
Suppose that there are m sources and n destinations. Let ai be the number of supply units
available at source i(i=1,2,...,m), and let bj be the number of demand units required at
destination j (j=1,2,...,n). Let Cij be the per unit transportation cost on route (i,j) joining
source i and destination j. The objective is to determine the number of units transported from
source i to destination j such that the total transportation costs are minimised.
Let xij be the number of units shipped from source i to destination j, then the equivalent linear
programming model is given as follows:
m n
Minimize x0 = 
i=0 j=0
Cij xij ....1a

Subject to
n


j=1
xij = ai i = 1,2,...m ....1b


i=1
xij = b j j = 1,2,..., m ....1c
 m n

i=1
ai = 
j=1
bj ....1d

xij  0 ....1e

This model is usually solved by special techniques (called the transportation problem
techniques) which are based on the simplex method. The model can be made more general by
relaxing the equality constraint 1c. But even with these extensions the present problem can
not be considered, as only the goal of cost minimization is considered in the classical model.
In any real life transportation and distribution problem, the number of goals to be achieved
(the number of criterion/objective) is more than one. The presence of multiple goals imply
that the "classical" transportation model can not be utilized for the solution of the present
problem. Owing to the presence of multiple goals the methodology to be used is
Multiple-Criteria Decision Making (MCDM) problem. In the following part of this section
we detail a MCDM model for the use in the design of a DSS for the transportation and
distribution plan generation of a public sector enterprise.
The model is defined as follows :
Suppose that there are M sources, N destinations, P products and R number of transportation
modes. Then let xijkl be the number of units of product k (k=1,2,...,P) transported from the
source i (i=1,2,...,M) to the destination j (j=1,2,...,N) by the transportation mode l
(l=1,2,...,R). Then we define the following quantities that are available as constraints/goals:
Aik is the matrix denoting the amount of the product k available at source i (rigid
constraint, modelled as a less than equal to type goal).
Djk is the matrix denoting the amount of the product k required at the destination j
(flexible goal, equality type, called the demand goal).
Sijl is the matrix denoting the distance between the source i and destination j by the
transportation mode l.
Tl is the matrix denoting the transportation tariff per unit weight per unit distance by the
transportation mode l.
B is the transportation budget (flexible goal, less than or equal to type, called the
budgetary goal).
Lil is the matrix denoting the total number of units of all products that can be handled
(loaded) at the source i for the transportation mode l (rigid constraint, modelled as a less than
or equal to goal).
Ujl is the matrix denoting the total number of units of all products that can be handled
(unloaded) at the destination i for the transportation mode l (rigid constraint, modelled as a
less than or equal to goal).
Cijl is a matrix whose elements are equal to 1 if the mode l is available for transportation
between the source i and destination j.
Gijk is the matrix denoting the amount of product k that the decision maker wants to move
from the source i to the destination j (flexible goal, greater than or equal to type, called the
movement goal).
Ejk is the matrix denoting the minimum amount of the product k the decision maker wants
to supply to the destination j (flexible goal, greater than or equal to type, called the minimum
demand goal).
Wij is the matrix denoting the maximum amount of all products that decision maker wants
to move from the source i to the destination j (flexible goal, less than or equal to type, called
the maximum movement goal).
The priorities for all the rigid goals is the highest say P0 (and in the actual implementation,
the user is not allowed to set the priorities for the same), thus the rigid goals/constraints are
fulfilled first and only then is the other goals fulfilled. For the others let the priorities be as
follows:
PD is the priority for the demand goal.
PB is the priority for the budgetary goal.
PG is the priority for the movement goal.
PE is the priority for the minimum demand goal.
PW is the priority for the maximum movement goal.
For the sake of exposition/simplicity we take the priorities in the order defined, that is, P 0 is
the highest priority, PD is the next highest priority, and PW the least preferred.
We also define the following indices and symbols:-
i is the index for source, i=1,2,...,M.
j is the index for destination, j=1,2,...,N.
k is the index for product, k=1,2,...,P.
l is the index for transportation mode, l=1,2,...,R.
Sindx denotes that the summation is to be performed over the subscripts indx to the symbol
S over the appropriate range.
Using these notations we define the goal programming model as:
lex min {
P0(dikA-+dilL-+djlU-),
PD(djkD-+djkD+),
PB(dB-),
PG(dijkG+),
PE(djkE+),
PW(dklW-)
}
s.t.
Sjl Cijl × xijkl + dikA-  Aik
Sil Cijl × xijkl + djkD- - djkD+ = Djk
Sijkl Cijl × xijkl × Sijl × Tl + dB- B
Sjk Cijl × xijkl + dilL-  Lil
Sik Cijl × xijkl + djlU-  Ujl
Sl Cijl × xijkl - dijkG+  Gijk
Sil Cijl × xijkl - djkE+  Ejk
Skl Cijl × xijkl + dklW-  Wkl
all d's  0
All the right hand side terms are in general matrices, thus in general all the d's (the
deviational terms) are matrices.
This model was used as the backend analytical model to a Transportation and Distribution
DSS. The system was designed in the Windows 95/NT environment.
SCM IN THE GOVERNMENT SECTOR
To understand the relevance of ‘SCM’ to the government sector, one must understand the
difference between the objective of a government/public sector enterprise and that of a
private sector enterprise. A government/public sector enterprise objective is not maximization
of profit solely, but also economic development of the nation (as a long term goal) and the
welfare of the society; whereas a private sector enterprise is oriented towards the sole
objective of maximization of profit. But, even if the objectives, of there two exclusive
categories of enterprises, are entirely different, they share some features:
 the satisfaction of their respective consumers by providing the consumer with the right
product, in the right condition and at the right time, at the least cost.
 the allocation of limited resources (of the nation and/or enterprise ) for this purpose.
In the government sector (in India) the SCM paradigm can be used by the public sector
organizations involved in:
(a) Petroleum Products : the bulk of the major petroleum product(s) required in the country
are indigenously produced, but at the same time significant proportion of crude and
finished products are being imported to meet the national demand. This requires the
construction of a global supply chain that should withstand the vagaries of the “petroleum
politics”. Petroleum products are needed through out the country on a priority basis. This
requires a well designed and feasible transportation and distribution network, integrated
with the production plan(s); distribution network; pricing policy; national and regional
demand policies etc..
(b) Fertilizer production industry : for the procurement of raw materials, manufacturing
and transportation and distribution to the demand centers through out the country, using
the predicted demand (as the need for fertilizers by consumers is bound to have a
regional and seasonal effect due to the very nature of the product and its use). The SCM
methodology can be used to decide the location of new warehouse(s), the design of the
raw material procurement policy, the design of the optimal distribution plan/channel etc.
This industry generally follows a single sourcing policy for raw material procurement,
(c) Coal and other minerals : These are primary sector industries, supplying to other
industries in “core manufacturing “ (the type of manufacturing that is essential for the
development of the nation like steel, electricity etc.) The consumers of the product of
these industries can be any where in the country, therefore a well designed SCM strategy
is an important activity.
(d) Steel industry : This industry depends on three major categories of supplies for the
procurement of raw materials: (1) Coal/coke, (2) Minerals (iron ore, limestone etc) and
(3) electricity. This industry needs a well designed a methodology for SCM, wherein it
may be controlling the production of the raw materials to an extent, and depending on
demand, supplementing with externally supplied raw material. The supply chain in this
case needs to be totally integrated, as a shortfall in this case can lead to closing of the
furnaces that can lead to their closure, leading to substantial economic and material loss.
(e) The Electricity generating industry : This industry in India faces a situation of demand
exceeding the supply. This demands a rationing system. It must be decided, and planning
must be done for distribution of the “load shedding” time, so that the basic need of the
consumers are satisfied in the region under consideration. SCM, and more specifically
optimal scheduling methodologies needs to be applied.
(f) Food Grain Procurement and Distributions : There are public sector enterprises
involved in the procurement of food grains and their storage in different parts of the
country, As agriculture is an “industry” where the type of product produced depends on
the geo-physical characteristic of the region; the grain that is produced in one region of
the country may need to be transported to another region to meet the food requirements
in other parts of the country. Therefore, a policy for the location of warehouses in
different parts of the country, a plan for optimal distribution of the procured foods grains
among these warehouses and to the retail shops under the Public Distribution Scheme
(PDS) and for open market transaction is required. A failure in any of the links of this
procurement - transportation - storage - transportation - retail can lead to large scale
famine in the affected part of the country. The organization must also be involved in food
grain distribution under exceptional conditions of famine, flood or earthquake. The SCM
concept can be used to manage the routine and extra-ordinary situations before this
industry.
(g) Postal clearance and delivery system : The Post and Telegraph (P&T) department of
the government of India is the organization that handles the major portion of the postal
volume generated in the country (a small fraction of the net postal volume is carried
through the private courier services). Thus, the transportation and distribution planning is
a major requirement of the organizations involved in the system. A well designed ‘SCM’
strategy will go a long way in improving the services for postal clearance and thus
increasing efficiency.
(h) Public Health Services : The public health services through the government run
hospitals and dispensaries forms the backbone of the health services offered by the
government of India. The functioning of these organizations needs to be strengthened.
Unavailability of essential drugs and other medical supplies leads to crisis. As the
pharmaceutical industry has major players from the public sector undertakings, the
hospitals can have a full-fledged integrated supply chain involving these PSU’s. The
SCM paradigm can be applied for the procurement and distribution of the life saving
medical drugs and other medical items.
(i) Import and Export : The government sector is involved in the Import of essential items
needed for the development of the nation, be that petroleum products, steel, coal, food
grains, essential drugs, defense stores etc, and export of products that the public sector
enterprises produce as a surplus, prime examples of these being mineral products like iron
ore, mica etc. This involves the negotiation with the other parties/government
organization for avoiding double taxation and charting an optimal delivery system.
(j) Banking and financial services : With the globalization of the world economy and the
liberalization policies pursued by the government of India, the banking sector was the
first to recognize the need for offering better facilities to the customers. Also, they were
the first to realize the benefits of the use of IT for this purpose. But, the use of IT for
integration of the different branches of the banks was not offered to the customers as to
provide a location independent real-time banking facility. It was primarily used only to
automate the routine working of the banks and for internal administrative purposes. EDI
can also be used for electronic clearance of inter-bank transactions leading to faster and
better transfer of funds. All links in the system needs to be addressed adequately in the
design of ‘SCM’, to meet the end objective of providing efficient services.
The above description is based on the assumption that the government enterprises work in an
isolation. But, generally in the supply chain of these enterprises, the main players are the
government agencies. Thus, the implementation of SCM paradigm in the case of these
enterprises can be effective if one takes care of :
a) Trust :- as all the organization involved belong to the same umbrella organization, the
building of trust among theses enterprises can be fast and more easy.
b) Sharing of information can be more often among these organization thus leading to better
understanding of the supply chain by the participant in the chain.
c) The transport sector - the weakest link in the supply chain - is largely under government
control (directly and/or indirectly).
d) Infrastructure :- Reliable communication network and information technology
infrastructure needed to deploy the information sharing mechanism do exist to a large extent
in the government sector.
For example, in the public health sector this can lead to faster delivery of medicines which
can help in prevention of epidemics. In situation like flood, drought or any other calamity the
relevant supply chain can be used to provide medical help, food etc. Thus, the application of
SCM paradigm is needed not only by private enterprises engaged in the pursuit of profit but
also by organizations that are involved in providing services for meeting social objectives and
for the welfare of the society at large.
Supply chain management has become not just a question of efficient logistic process, but is
related to the growth and survival of organization(s). With customers becoming more
demanding in their requirement of services from the suppliers, the construction of a efficient
and integrated supply-chain has assumed paramount importance. Information technology
plays a major role in the formation of the supply chain. Efficient dissemination of
information upstream and downstream is a major requirement for the implementation of the
supply chain, IT provides the this with internet, EDI and GroupWare’s and other application
software’s. The decision support provided by IT products (ERPs, Network construction tools
etc) can help the decision makers in the development of the supply chain process and in
implementation. The dissemination of the demand (forecast) information throughout the
chain can lead to avoidance of the “Bullwhip” effect[17]. The quantitative models embedded
in the DSS’s for supply chain management are still at a very elementary stage (in comparison
to the theoretical developments), for decision support in the construction of an integrated
demand-supply chain, use must be made of these advanced techniques. Organizations can
gain supply chain related benefits through the use of internet, namely:
 more collaborative, timely product development through enhanced communication
between functional departments, suppliers, customers and even regulatory agencies;
 reduction of channel inventory and product obsolescence owing to closer linkage across
the supply chain and better insight into the demand signals to drive product schedules and
ultimately achieve build-to order capability;
 reduction in communication costs and customer support costs with more interactive,
tailored support capability inherent with internet technologies;
 new channel capabilities to reach different customer segments and further exploit current
markets; and
 ability to enhance traditional products and customer relationships through customisations
driven by internet connectivity and interactivity.
The SCM paradigm can provide the mechanism for the survival of the public sector
enterprises in the changing global scenario, where the globalization of the world economy
and the liberalization of the Indian economy is no longer a buzzword, but a fact. The failure
of these enterprises can be traced to the ad-hocism and the non-application of efficient
managerial practices. This is not to say that these enterprises have lost their relevance in the
present scenario. These enterprises have to adopt “change management” i.e. to change their
style of functioning, and to form strategic alliances with partner public sector enterprises

MANAGING SUPPLY CHAINS FOR COMPETITIVENESS:

THE INDIAN SCENARIO

India’s competitiveness
Over a decade has passed since India embarked on liberalisation. There has been no dearth of
fervent declarations affirming India’s determination to acquire the capabilities that will add to
its competitiveness and enable it to be counted among other recognised global players
(Gupta, 1998). However, has India been able to cash on inherent and acquired advantages in
terms of competitiveness? Three different bodies assign three different grades to India:
(1) The 1999 World Competitiveness Year Book, compiled by the Switzerland-based
International Institute for Management Development (IIMD), shows that India’s ranking in
international competitiveness, evaluated by applying 287 criteria, has gone up by two points
from being 41st out of 46 countries in 1998 to 39th out of 47 countries in 1999 (Nancy,
1999).
(2) The survey conducted by the Geneva-based World Economic Forum (WEF) for 1999 puts
India in 53rd position of 59 countries in its Global Competitiveness Report, down from 50 in
1998, and 45 in 1997 and 1996. It uses 179 indicators under eight heads (openness,
government, finance, infrastructure, technology, management, labour and civil institutions).

BUSINESS CHALLENGES IN THE TWENTY-FIRST CENTURY

The information age competition has ushered in a new set of challenges for business
competitiveness (Luftman, 1996).
These include:
 Understanding customers. There is no escaping the fact that the customer in today’s
marketplace is more demanding, not just of product quality, but also of service. As
more and more markets become in effect “commodity” markets, where the customer
perceives little technical difference between competing offers, the need is for the
creation of differential advantage through added value. Hence, it is increasingly
becoming important to understand customers’ needs and wants and to translate these
into a unique value-added business mission.
  Mastering mass customisation. The driving force behind the importance of
responsiveness and flexibility is the need and the wish to respond to virtually any
customer request just in time. Mass customisation offers a viable solution. It involves
the delivery of a wide variety of customised goods or services quickly and efficiently
at low cost. The key to making mass customisation work is highly-skilled and
autonomous workers, processes, and modular units, so that managers can co-ordinate
and reconfigure these modules to meet customer specific customer request and
demands. Mastering mass customisation is the step towards gaining a competitive
edge and is driving new business models.
 Undertaking globalisation. There is an increasing trend towards globalisation.
Almost every sector of business is influenced by global forces due to globalisation. In
the global business, materials and components are sourced worldwide, manufactured
offshore and sold in many different countries, often with local customisation. The
challenge for the global company, then, is to achieve the cost advantage of
standardisation while still catering for the local demand for variety. This has given
rise to intense competition blurring the boundaries between domestic and global
markets.

Business, therefore, can no longer act as an isolated and independent entity in competitive
world, the real test of competitiveness takes place in “international markets” (Garelli, 1997;
Salcedo and Grackin, 2000). There is a need to create value delivery systems that are more
responsive to fast changing global markets and much more consistent, focused and reliable.

SUPPLIER MANAGEMENT

Supplier Management forms an integral part of the supply chain. A good supplier base
ensures minimal disruption to processes downstream, good quality materials and optimal
inventory levels of raw materials. It also provides enough confidence in the manufacturer
about the capabilities of the supplier base. However, a good supplier base is built over time
and it is more than just procuring materials. This study aims at identifying supplier base
related issues and then gauges the level of confidence that companies have in their supplier
base. This whitepaper focuses on the following three aspects of supplier management.
• Supplier tracking
• Overall supplier health, and
• Information sharing with suppliers
Supplier Tracking
Even though 70% of respondents agreed that supplier tracking is important, very few seem to
adopt it. Our research evinces that fewer than half the sample surveyed conduct supplier
tracking exercise on a monthly basis or more frequently. This leads us to believe that despite
a general awareness that regular supplier tracking is crucial to business success, most
organizations do not have supplier tracking mechanisms in place.

Globally renowned and efficient companies track two types of information for efficient
supplier
management system.
• Internal supplier performance
• Overall supplier health
In order to be competitive in a global environment, Indian firms need to evaluate supplier
performances on a daily or per shipment basis besides conducting periodic supplier audits,
which are based on standard audit process formats. Companies must prepare supplier
scorecards indicating quality, on-time delivery, average cost incurred from order placement
to receipt of materials, etc.

Overall supplier health

90% of respondents were confident about the size and capabilities of their supplier base. This
confidence could only develop from having the right number of suppliers with necessary
capabilities. To quote an example, when Edscha, a German manufacturer of sun roofs, door
hinges and other car components went bankrupt, BMW came to its rescue. Later, BMW was
ready to launch its new Z4 convertible but realized that Edscha was the only supplier of
roofs, which were suited for the Z4. BMW was left with no choice, as developing another
supplier would have taken six months and the company could not afford any such delay. To
avoid such bottlenecks, it is imperative that companies track overall supplier health.
Companies can either set up their own information gathering systems or opt for third party
systems that offer supplier intelligence based on information collected from a number of
primary and secondary sources.
Suppliers – Strategic Partners
In terms of information sharing, 45% of respondents agreed that the frequency of information
sharing with suppliers is dictated by the urgency of the situation. This leads us to conclude
that even today, information sharing protocols are not clearly defined in supply chains in
India. With continual information sharing, huge benefits can be achieved with very little
effort.
Global companies consider suppliers as strategic partners, enabling them to build a
competitive edge over others. Some of the best practices followed by world-class
organizations are:
• Regular supplier conferences
• Frequent feedback meetings and visits
• Early supplier involvement while planning projects or production
• Sharing performance scorecards with suppliers from time to time
Moreover, companies can track suppliers based on important aspects such as the ability to
innovate, regulatory compliance, etc. In addition, companies need to have supplier
intelligence and tracking mechanisms in place to constantly monitor their supply chain.
Risk Management
Risk Management has now become an integral part of every aspect of business operations.
Increasing threat due to terrorism, competition, unpredictable weather, and scarcity of natural
resources are major concerns for supply chain managers. In order to insulate business
operations from unpredictable, uncontrollable events that can potentially hamper material
supply, production and distribution, more and more supply chain managers are turning
towards risk management in SCM.
New Zealand’s dairy giant Fonterra, for example, was recently caught in the Chinese
melamine milk scandal. Even though Fonterra knew about the tainted milk as early as
August 2, it was unable to establish evidence that its dairy products were infected with
melamine until September 10. The six-week delay in product recall did a lot of damage to
the Fonterra brand and made the company liable for prosecution under EU laws.
Type of Risk Management Adopted
Research study has shown that despite growing risks in every area of supply chain, right from
procurement to distribution, awareness towards risk management has not reached many areas
of supply chain management. While a little over 85% of respondents have implemented risk
management in specific supply chain functions such as inventory and suppliers, IT security
continues to be a neglected area. We feel that there is a tremendous opportunity for creating
awareness and assisting organizations in implementing a structured supply chain-wide risk
management framework.
Data Quality is very critical in ensuring that optimal risk management strategies are in place.
If companies do not have a clear idea on the number of items or suppliers they manage, then
it would be difficult for them to create a good risk management plan. A large CPG
manufacturer had estimated that the company was managing information on about 100,000
products; a data quality initiative however showed that the number was only about 45,000.
In addition to risk management on inventory levels and suppliers, organizations must also
focus on other potential risk areas such as brand and reputation risk, regulatory compliance
risk, risk due to natural calamities and product safety risk.
Management of risk across the supply chain is key to business sustenance and continued
profitability. Some of the steps that companies can take to establish robust risk management
strategies across all functions of their supply chains are:
• Proactively identify all potential risks inherent in the supply chain
• Establish effective control processes aimed at managing risk
• Set accountability for both internal and external stakeholders
• Define performance metrics for supply chain risk management
IT penetration in Supply Chain
Today, IT is an essential and critical business support infrastructure. A large number of
companies are deploying and using different transaction processing systems. In today’s
environment, most companies have implemented enterprise wide business packages to run
their day-to-day business processes like procurement, inventory management, dispatch and
financial management. Our research substantiates this, as more than 80% of respondents have
implemented IT systems for their supply chain.

However, when we evaluated these IT systems based on the purpose of implementation, it

was found that an overwhelming majority, around 95%, of IT systems are transactional
systems and the deployment is limited to certain functions like inventory, production
planning, accounting and shop floor. There is tremendous potential to extend the deployment
of IT systems to areas like logistics and warehousing, sales and distribution and in decision
support systems like APO, BI and Spend Analytics.
Supply chain technology has evolved, and companies worldwide are looking at more
complex tasks such as process integrity, transaction reliability, and intelligence for better
decision making, data visibility and easier integration with their supplier’s supply chain.
Companies are also integrating RFID technologies for improved inventory tracking.

Companies are considering cross-functional integration of supply chain technologies not only
within different functional areas but also with diverse IT systems of their customers and
suppliers. As the need for communication and integration among different technologies
arises, companies also seek common standards that would ensure data transparency and
interoperability. Some of the best practices in technology, such as Spend Management, are
fast becoming universal standards. Today, IT needs to be focused towards providing
intelligence and insight for better decision making rather than providing massive data from
ERP/SCM or other similar systems that often overwhelms users but is not of much practical
use to them. Ensuring the availability of consistent information across different applications
is a major challenge. Keeping data up–to-date, extracting and finally transforming it for use
across multiple applications require considerable expertise. On-demand, hosted services offer
companies cost-effective solutions with the right mix of technology, processes and expertise.
They ensure that data is accurate, comprehensive and consistent.

Supply Chain Performance Metrics

The research also tried to assess different problem areas currently present in supply chains. A
majority of respondents, around 45%, put Inventory Reduction in the top slot in their list of
supply chain issues. This was also corroborated by the fact that around 70% of respondents
were carrying more than 30 days of inventory. Supplier management came second at 40%,
while working capital reduction came third at 17%. Indian industries are in need of
optimization tools and better process modeling in order to exploit available resources and
sustain lean operations.
Demand planning was found to be another area offering scope for improvement, as around
40% of respondents said that mismatch between forecast and actual production is in the range
of 20% to 40%. This area has good potential for improvement through the introduction of
demand planning using statistical methods.

Supply Chain Outsourcing

Now, supply chain managers in India are aware of the benefits of outsourcing; but supply
chain managers are still outsourcing only functions like transportation and warehousing,
which together constitute around 60% of the outsourcing pie. However, with the spread of
concepts like Contract Manufacturing and increase in the capabilities of Tier I and II
suppliers, around 12% of respondents cited this to be the next growth area in outsourcing.
One of the USA based hardware manufacturing firms holds approximately 70% of its
inventory in its Supplier Logistics Center (SLC), a warehouse or inventory hub operated by a
third-party provider and located less than one mile from its manufacturing facility. The third-
party provider handles transactions related to incoming inventory from suppliers and delivers
inventory to the client to exactly meet manufacturing floor requirements.
On similar lines, a tractor manufacturer in India has a warehouse maintained by a third party
and gets the supplies to the manufacturing floor based on pull signals. This essentially
reduces the inventory and frees floor space in the manufacturing facility. Nevertheless, some
of the associated risks with this practice are: visibility to the part availability status, damage
to parts while handling, obsolescence etc.
Indian companies are beginning to outsource supply chain functions like supply network
planning, e-procurement etc. to third party professionals in order to get quality service at
competitive rates.
CONCLUSION

In today’s dynamic business environment, the rate at which new products reach the market
has increased tremendously. Moreover, due to competitive pricing and innovative marketing
strategies, the availability of products has to be ensured at the right time at the right price at
locations nearer to the end user. This requires synchronized concurrent operations by
professionals in order to satisfy the expectations of quality- and price-conscious customers.
The question before companies is how they can efficiently operate and specialize in all
functions of the supply chain, including Sourcing, Inbound Logistics, Warehousing,
Production Scheduling & Planning, Manufacturing, Outbound logistics, distribution, Supplier
Tracking, Supplier Risk Management and Information Management. Companies worldwide
are engaging specialists in these fields for agile and flawless executions. This trend is
catching up with Indian firms as well, even as they strive to withstand global competition.
Managing supply chain in such a vast country is most challenging for any organisation
because of business practices, government regulations, technology capability, transportation
infrastructure, etc. The current paper has explored Indian organisations for their current level
of supply chain management practices. It has outlined the framework of achieving
competitiveness by alignment of supply chain strategy with business strategy giving due
coverage to three dimension namely objectives, processes and management focus. The
research findings reveal that most of the Indian organisations have aligned their supply chain
objectives with the business objectives. They are now on course of aligning their processes
and management focus as per the focal areas of customer service, profit maximisation and
operational excellence. An enhanced level of competitiveness would require Indian
organisations to manage the three-dimensional alignment to achieve the agenda set by the
business strategy. The supply chain alignment model suggested in this paper provides a
framework for realising true supply chain efficiency and competitiveness.
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