INTRODUCTION
With ever increasing globalization and rising customer’s expectations,
logistics and supply chain management is emerging as a definite competitive
advantage for the corporate world. This
is a new weapon in hands of business organizations for reduction of logistics
and manufacturing costs resulting ultimately in higher ROI, increased
customer’s satisfaction and delivery of highest value to shareholders. In
today’s globalized world companies have to align their business strategy with
their supply chain strategy so as to survive the new cut throat competition.
Supply chain management concepts are relevant to both manufacturing and
service organizations and are applicable to even entire nations. Nations are
striving hard to bring down their infrastructural and logistics costs so that
industries can manage their supply chains most effectively.
In Indian context the logistics costs alone are around 13 per cent of
our GDP and must be brought down to the order of ten to eleven per cent
comparable to Europe and Japan .
In developed countries like U.S.
, the logistics costs are as low as 9 per cent.
India ’s
GDP has grown now to one trillion dollar and there is thus huge scope to save supply
chain costs if we improve our infrastructure comprising of better Ports, roads
and railways.
Historically companies tried to reduce their business operation costs
under different names like Material management, physical distribution,
transportation management, and logistics but each segment worked in silos and
missed an integrated supply chain approach leaving a huge scope of cost
reductions. Modern supply chain management concepts take a unified approach
combining customers and end users, suppliers, manufacturers and intermediaries
like distributers, dealers and retailers resulting in not only reducing costs
but in increased sales due to a unified customer centric approach.
Scope of cost reduction is enormous and ranges from 60 to 80 per cent of
a firm’s Sales income and is essential for a firm’s competitive strategy and
revenue generation and involves activities like transportation, inventory
maintenance, order processing, purchasing, warehousing, materials handling,
packaging, customer service standards and production.
New leadership in our country led by our Prime Minister Mr. Narendra
Modi as evident in the current budget is taking vital steps to focus on
manufacturing and improvement of country’s infrastructure comprising of
dedicated freight corridors of both rail and roads and new sea ports. As such
supply chain concepts must be applied vigorously both in manufacturing and
service sector so as to put back India ’s growth story back to 9
percent from current 4.5 per cent of GDP growth.
Basic understanding of Logistics and supply Chain
Management.
Logistics is the process / chain management of transport
flow and the storage of goods and services from its origin to it consumptions.
It includes both inbound & outbound movements and does not include activities
such as forecasting and procurement.
Supply Chain Management
(SCM) is the oversight of materials, information, and
finances as they move in a process from supplier to manufacturer to wholesaler
to retailer to consumer. SCM involves coordinating and integrating these flows
both within and among companies with the objective of making products available
when needed.
Supply chain management can be divided into 3 main flows:
·
Product
flow
·
Information
flow
·
Finances
flow
The above schematic
shows the basic supply chain process divided in various stages involving
inbound logistics, manufacturing logistics, supply logistics, distribution
logistics and after sales logistics. The Reverse logistics flow as shown in the
diagram is for the return goods which can be recycled by production units to be
sent back again to the market place.
Scenario of new supply
chains is changing fast due to the following factors.
•
Global
competition
•
Well
informed more powerful Customers
•
Customer
Expectations
Emerging trends in supply chain management and its impact on
the Industry
Some Bullet Points
·
Customer centric approach in the entire value
chain right from suppliers to manufacturing to warehouses to Retailers. Impact
on the industry is to match supply and demand resulting in lesser inventory
costs resulting in increased profits and more sales due to better customer
satisfaction. Example in industry are Dabur, HLL , Procter & Gamble,
Maruti, Mahendra & Mahendra, Future group ( Kishore Biyani ) and Tatas
·
Trend of outsourcing functions like warehousing
and transportation giving rise to 3PL service providers in the industry with
focus on cost reductions and better service to customers.
·
Suppliers are treated as partners resulting in
suppliers taking keen interest in supplying quality components to production
units well in time taking keen interest in order processing. Impact on the
industry is improvement in efficiency of production units manufacturing better
quality products with shorter deliveries
·
Logistics in manufacturing industry is getting
recognized most important function after product development as there is
significant volume of goods movement both inbound ( components and material
sourcing) and outbound ( product distribution )
·
Trend is to emphasize on quality, Efficiency, speed,
Innovation and responsiveness to customers by all partners impacting the
availability of better products with increase in Sales volume of the industry
and more market share.
·
New trend in supply chain management is to
insist on VISIBILITY from end to end in entire value chain. This is made
possible through introduction of information and communication technology with
help of ERP, RFID, GPS, EDI, VMI (vendor managed inventory) through internet.
Industries are embracing ICT technology with software modules like
WMS,TMS,CRM,SRM and CRM
·
With impact on visibility, 3PL service providers
are embracing ICT offering tracing and tracking capabilities monitoring
carrier’s performance in carrier’s pick ups and deliveries.
·
3PL service providers are becoming flexible in
accommodating emergency and contingency requirements of manufacturing
companies.
·
Cold chain management for agricultural and
horticulture products which are perishable and temperature sensitive impacting
emergence of new industries in FMCG sector.
·
Supply chain management concepts are equally
applied to service industry just like manufacturing in areas of healthcare,
hospitality, tourism and food chains impacting the industry with better
customer care giving rise to customer relationship management.
·
Rising trend of green supply chain management to
create environmental friendly products by industries right from inception of
product to its consumption.
·
Innovation is being emphasized giving rise to
Industry-Academia interfacing to create better product developments and trained
manpower.
·
Manufacturing companies are changing the culture
of ‘push sales’ to ‘pull based production and supply systems with emerging
trends of SCM.
·
Introduction of KANBAN for pull based
procurement
·
E-Tracking of transportation vehicles.
•
Shorter
product life cycle
•
New,
low-cost distribution channels
•
Internet
and E-Business strategies
In supply chain
management concepts, suppliers are treated as partners and all the customer’s
information is shared with dealers, distributers, manufacturers, transporters
and suppliers so as to provide VISIBILITY to all the stakeholders of supply
chain. It must be borne in mind that it is the lack of visibility which
increases risk, cost and order execution time for the company. The visibility
about customer’s orders, stock inventory at all points and transportation during
its various modes and
routes is made
possible through heavy use of Information and communication technology
involving internet, telecommunication, ERP, and process automation embedded
with technologies like EDI, BAR CODE/RFID and GPS technology. This helps companies
in matching the supplies affected from manufacturing units to the demand made
from customer thus reducing the huge inventory costs locked up in warehouses
and transportations.
Supply
Chain Objectives
- Enhancing Customer Service
- Expanding Sales Revenue
- Reducing Inventory Cost
- Improving On-Time Delivery
- Reducing Order to Delivery Cycle Time
- Reducing Lead Time
- Reducing Transportation Cost
- Reducing Warehouse Cost
- Reducing/Rationalize Supplier Base
- Expanding Width/Depth of Distribution
- Having Products in Stock
Companies achieve a
paradigm shift in meeting their objectives while collaborating with their
supply chain partners and synchronizing their operations. Technology becomes
the key enabler for innovative supply chain strategy. Supply chains are
restructured and reskilled to achieve the goals. Collaborating with partners in
a single supply chain also means that partners must not dispute for individual
profits but participate in overall success of their supply chain.
How Wal-Mart managed it.
Company like Wal-Mart applied the rules of Global supply chain Management
successfully and rose to become number one company in the world after beating
big Conglomerates like K-Mart and Sears in their own game. Wal-Mart chose their
suppliers globally from countries like China
and Far East and cut down its procurement and
manufacturing costs and could sell every item cheaper than their nearest
competitor. Wal-Mart carried out computerization with heavy use of ERP
(Enterprise Resource planning) software throughout their value chain and shared
the customer’s information liberally with their suppliers, distributors and
dealers through IT networks resulting into complete transparency throughout
their value chain. The information concerning the buying behaviour of
customer, purchase orders, prices and inventory flowed both way along the value
chain resulting into reduction of inventory carrying costs both for finished goods
and raw material. Wal-Mart could thus supply what customer exactly wanted at
the right place, at the right time and at the right price.
With customer centric approach, Wal-Mart set up huge distribution centres
in every city where merchandise in cartons were received from various
suppliers chosen globally shipped by sea, Air or Rail Road and trucks and
then unloaded on the network of conveyer belts installed at the distribution
centres. The merchandise was redistributed despatching and transporting it once
again to the various Malls located throughout the city. The history of content
of the cartons was identified by RFID tags with information like country of
origin, technical details of the content, source and destination, expiry dates
of the goods inside and temperature to be maintained. This enabled the
concerned handling staff to properly prioritize the cartons carrying perishable
items or items like medicines and deliver it to Malls before the expiry date.
This way they could make most of the items including FMCG goods always
available on the shelves for the customers who came to Wal-Mart in huge numbers
because of lower prices being offered. Wal-Mart was also ahead of their
competitors in reducing the lost sales arising due to non availability of goods
on the shelves.
Global supply chain management is now imitated by most of the companies
in the world after the success story of Wal-Mart who starting from a small
place called Bentonville , Arkansas
in United States
Case of Boeing, the Aviation Conglomerate
Today the supply
chain is no longer contained within countries borders, but encompasses all
nations, whether they are vendors, manufacturers or customers. Boeing which is
a premier Aviation multinational
manufacturing aircrafts is able to assemble the
Aircrafts in 3 days flat while outsourcing most of the parts and
components from suppliers located far and wide throughput the world. It takes
advantage of best of what is available in different countries in terms of best
of research and development facilities, cheap labour, skill set and technology
and coordinates its value chain amazingly well to maximize its production
delivering aircrafts of topmost quality in an unparalleled innovative approach.
VARIOUS SUPPLY CHAIN STRATEGIES FOR COMPETITIVE
ADVANTAGE
1. Inventory Strategy
This involves the following.
·
Forecasting
·
Inventory
decisions supported by IT
·
Purchasing
and supply scheduling decisions
·
Storage
fundamentals like ABC analysis etc.
·
Storage
decisions and cold chain management
2. Location strategy
This involves location decisions involving warehouses and manufacturing
units vis. a vis. Suppliers and marketplace
3. Transport strategy
Here decisions like route selections and modes of transport
(air,sea,rail or road) are taken with cost, time and type of product in mind.
4.Service improvement strategy
The strategy usually recognizes that revenues depend on the level of
logistics service provided like through ERP systems with modules like CRM (
customer relationship management). Examples are Call centers and hospitals in
service industry.
5. Postponement Strategy
Benetton used to follow the traditional way of making hosiery: dye the yarn
(fixing the colour) and then knit the fabric (fixing the style) but research on
customer data showed that-
1.
Understanding
customer behaviour showed that it was easier to predict style choices than
colour choices.
2.
Consequently,
they evolved a technology to change the production sequence for their single
colour fabrics to first knit and then dye.
3.
This
enabled the supply chain to be aligned with the market behaviour choice.
6. Delayed
Differentiation strategy
•
By
acquiring a technology that enabled mixing of colors and base paints to get the
appropriate shade in a few minutes, Asian Paints obtained a competitive edge by
delaying their differentiation resulting in Retail inventory costs coming down while at the same time, product availability going
up.
Supply chain management helps
environment (Green supply chain)
Further all over the world there is a growing realization of making world
green by avoiding the harmful effects on the environment due to pollution
caused on air, water and soil during process of extraction, manufacturing
operation, physical distribution and logistics by sea, air, road and rail and consumption of the end product by
consumers. Multinationals all over the world are focussing on Green supply chain
management involving negotiating policies with suppliers and customers
resulting in better alignment of business processes and principles so as to
improve the environment and ecology. Wal-Mart, world’s largest Retailer
enforces his suppliers to follow green supply chain policies making it mandatory
on his suppliers to revaluate the material content and adopt environmental
practices so much so that it refuses to do business with defaulters who do not
follow green practices and environmental management systems. Green supply chain
management mitigates risks and speeds up innovations. Recently Chinese toys
were banned by America
Importance of Infrastructure
Infrastructure in terms of good port facilities both for sea and air
route, mobility on roads and good telecommunication infrastructure plays a
vital role in handling global supply chain. Wal-Mart used Satellite
communication very effectively in terms of VSATs installed in every store in
reaching their Chinese and Taiwanese suppliers sharing the information such as
inventory, customer’s buying behaviour and Sales data. Apart from that they
used ERP software with modules like warehouse management system, transport
management system, supplier relationship management and customer relationship
management system to name a few. They forced their suppliers to adopt EDI
(Electronic data Interchange)
saving on time and improving responsiveness to the customer’s needs.
Indian Scenario
Indian business conglomerates are now expanding their operations beyond
the frontier of the nation and many like Tatas, Reliance and Bharti Group have
taken over foreign companies. In this background of Indian
expansion of trade in foreign countries,
supply Chain Management shall play a very vital role towards long term
sustenance and growth of Indian business.
Some of the successful companies who have applied supply chain management
successfully are as under.
Automotive - Telco, Mahindra & Mahindra,
Maruti
Chemicals - Asian Paints, Apollo tyres ,
Reliance
Apparel - Madura Coats, Reliance
Food - Cadbury, Parle, Amul Products, HLL
Consumer durables - HLL, P & G
Construction - L & T
Pharmaceutical - Ranbaxy, Glaxo
Electromechanical – Kirloskar, L & T
Tooling - HMT, Widia, Mico
PC/ Computer - IBM, WIPRO, HCL, Intel
As the
global supply chain becomes more complex with every passing year, companies
must adapt to this change and incorporate them into their supply chain
strategies. This change could mean using vendors from developing nations or
exporting goods to new markets. Companies that have traditionally operated
within national or regional trading groups may feel ill-equipped to extend
their supply chain. Such closed door operations without knowing what is happening
elsewhere in the world can be fatal and even shall be detrimental to their
survival if they are unable to select and manage a foreign vendor or not
knowing how to sell items in a new country. On the infrastructure front in India so much is happening with improvement of
airports at Delhi , Mumbai and Bangalore
and Aviation cargo hub at Nagpur India
Written
By.
Prof.
Akhil Chandra
