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IJPDLM
33,7 Supply chain management
practices in Indian industry
B.S. Sahay and Ramneesh Mohan
582 Management Development Institute, Gurgaon, India

Received September Keywords Supply chain management, Strategic evaluation, Inventory, Internet, India
2001
Revised March 2002, Abstract Increasing uncertainty of supply networks, globalization of businesses, proliferation of
February 2003, product variety and shortening of product life cycles have forced Indian organizations to look
June 2003 beyond their four walls for collaboration with supply chain partners. With a gross domestic product
(GDP) of over US$474.3 biilion, the Indian industry spends 14 percent of its GDP on logistics.
Considering this scenario, it is necessary to study the supply chain practices being followed by the
Indian industry and to suggest areas for improving the same. This paper is based on a joint
survey, covering 156 organizations, carried out by Management Development Institute, Gurgaon
and KPMG India. The paper primarily focuses on the status of four major supply chain
dimensions. The paper recommends that the Indian industry should align supply chain strategy
with business strategy, streamline processes for supply chain integration, form partnerships for
minimizing inventory and focus on infrastructure and technology deployment to build a
India-specific supply chain.

Introduction
Today’s businesses have become extremely complex. The interplay of the three
Cs, namely, consumers, competition and convergence, has thrown open new
challenges for organizations all over the world. Consumers have become highly
discerning in their choice of products and services. The pressure of competition
has accelerated product changes, supercharged by shortening product and
technology development lifecycles. Convergence has shifted the balance of
power in favor of the consumers thereby giving way to globalization of
businesses and integration of economies. although this may have thrown open
a plethora of opportunities for all – in the form of variety and choice, it has at
the same time added the highest degree of uncertainty and unpredictability to
business processes. To combat these risks and challenges, organizations round
the globe are re-organizing and streamlining their supply chains.

Supply chain complexity: India

Worldwide interest in supply chain management has increased steadily since
the 1980s when organizations began to see the benefits of collaborative
relationships. This management concept is, however, nascent in India (Vrat,
International Journal of Physical
Distribution & Logistics Management 1998). Increasing uncertainty of supply networks, globalization of businesses,
Vol. 33 No. 7, 2003
pp. 582-606
proliferation of product variety and shortening of product life cycles have
q MCB UP Limited
0960-0035
forced Indian organizations to look beyond their four walls for collaboration
DOI 10.1108/09600030310499277 with supply chain partners.
 Changes in the environment have been so dramatic and sudden that Indian Supply chain
organizations have realized the inappropriateness of competing effectively in management
isolation from their suppliers and other associates of supply chain. Rather, the practices
need for adopting collaborative methodologies, at this stage, is more than ever
before because of the recent economic deregulation and globalization of the
Indian industry. The traditional “protective” economic, industrial and
organizational boundaries have been demolished (Saxena and Sahay, 2000).
583
While emerging markets offer opportunities they also bring along new rivals.
Information networks and technological convergence are re-defining the rules
of economic and trading relationships within the country. Hence, it has become
necessary for Indian organizations to look for methodologies and processes
that produce maximum efficiency both within and beyond their operations
(Sahay, 1999).
For most Indian organizations, which have hardly ever operated in an
“open” economy, working along with the right business partners (suppliers,
customers and service providers), fostering trust between them and designing
the right system of gauging performance is altogether a new ball-game. And
the statistics show it all. The Indian industry spends an exceptionally high
amount of 14 percent of its gross domestic product (GDP) on logistics. Close to
22 percent of the aggregate sales, amounting to over US$25 billion, is tied up in
inventories in the supply chain network countrywide (Korgaonker, 1999a, b).
Although India, with a population base of over a billion, is one of the fastest
developing economies of the world, it needs a different approach to put its
economy on the path of sustainable economic growth.

India’s economic and infrastructure scenario

Before the 1990s, Indian organizations operated in a protected environment.
There was very little competition even amongst domestic players. Business
was driven by almost monopolistic strategies. However the de-regulation of the
Indian economy in the last decade has attracted global players in every
industrial sector and has unleashed a new competitive spirit in the Indian
organizations (Saxena and Sahay, 2000). Statistics reveal that India, the fifth
largest country in terms of gross national product (GNP) and purchasing power
parity (PPP) (World Bank, 1999) and a consumer base of over a billion (CMIE,
2000), constitutes one of the fastest growing markets in the world. India is also
counted among the richest with regard to cheap skilled labor, scientific and
technological resources and entrepreneurial talents. However, India lags
behind in competitiveness because of various factors. These include continued
reliance on licensing rules, price controls, state ownership of crucial
undertakings, currency controls, barriers to trade along with political
instability and a high level of corruption.
Another distinct characteristic of the Indian economic environment is the
inadequacy of basic inputs normally required to support organized economic
IJPDLM activity. The Indian infrastructure – comprising roads, railways, airports,
33,7 seaports, information technology (IT), telecommunications and energy
production – is considered very poor as compared with other developed and
developing countries. The overall Indian infrastructure is rated 54th among 59
countries in comparison to other developing countries (World Economic
Forum, 2000):
584
.
Roads. By the end of 1996-1997, India had a total of 24.66 lakh km of road
length network. According to estimates of the Planning Commission, the
roads carried just 11 percent of goods and 28 percent of passengers
during 1950-1951. The proportions stood at 60 percent for goods and 80
percent for passengers during 1995. Express and national highways
constitute only 1.4 percent of the total road length, but carry nearly 40
percent of total road traffic. Reach in the interiors of the mainland is
limited with only 48 percent of the 0.55 million villages being connected
with roads. This poses a serious limitation of access and connectivity to
rural markets. In spite of the vast road transport network, India is rated
56th (Porter, 2000) in terms of the competitiveness on road infrastructure.
This is primarily because the quality of roads plays a pivotal role towards
safe and swift transportation of goods and Indian roads are of poor
quality.
.
Rail transport. The Indian railway network is the second largest railroad
system in the world covering a route length of 81,511km. This facilitates
4,630.05 million passengers and 450 million tonnes of freight movement
every year (CMIE, 1999). However, in terms of the quality of rail
infrastructure, Indian railways are rated 25th among 59 nations (World
Economic Forum, 2000). This results in the slow average speed of freight
movement and low average wagon turnaround time, which are major
concerns for the logisticians in the country.
.
Airports. The six international and 87 domestic airports handle 0.22
million metric tonnes of domestic cargo and 0.468 million metric tonnes of
international cargo, which is extremely poor in terms of world standards.
As a result, the quality of airport infrastructure is rated 40th among 59
countries (Porter, 2000). This poses a serious limitation in procurement,
especially when companies are looking at adopting global sourcing
strategies to reduce costs and enhance product quality.
.
Seaports.There are 11 major ports that handle the total foreign trade of
the country amounting to 271.92 million tonnes (CMIE, 1999). The facility
and infrastructure of Indian ports are rated 51st among 59 countries
(Porter, 2000) primarily on account of lack of storage space and outdated
handling equipment.
.
Telecommunications. With a teledensity (number of phone lines per 100
persons of the population) of 3.6 in March 2001, the telecommunication
 network in India is one of the largest telecommunications networks in Supply chain
Asia. This capacity has increased to 4.89 with the availability of cellular management
and WLL operators. However, it drastically lags the global average of practices
17.2. Developing countries like Brazil and China have a teledensity of 21.8
and 13.8 respectively. Developed countries like USA and UK have
teledensity of 66.5 and 58.8 respectively. As a result, delivering low-cost
voice telephony and low-cost high-speed computer networking for 585
communication and business integration remains a big challenge in the
Indian scenario.
.
IT. The 43 Internet service providers provide Internet access to 5 million
users in the country. In 2001, the IT expenditure of 3.46 percent of GDP
resulted in a computer density (PCs per 1,000 persons of the population) of
1.5 – making the reach and availability of IT services far from desirable.
A major part of this is due to the non-availability of wide area networks in
the public domain as well as lack of awareness by the users.
All the factors related to infrastructure stated above have adversely affected
the supply chain network in the country – both in terms of lead-time and costs
(Korgaonker, 1999a, b). Indian organizations were ill-prepared for meeting the
challenges effected by an open economy and had not developed the required
infrastructure to meet the eventuality created by globalization of businesses
and deregulation of the Indian economy. The challenge in such a scenario is to
come out of the comfort zone provided by a “protected” economy, redesign and
implement bold policies with emphasis on effective mobilization of resources,
achieve sustained export growth, and eventually develop competitive
strategies to have a sustained GDP growth rate of over 7 percent (Rao, 1998).

Need for research

To succeed today and to pave the way for a better future, Indian organizations
need to create strong linkages with their business partners using the concept of
supply chain management. More and more Indian organizations today are
realizing the importance of developing and implementing a comprehensive
supply chain strategy – and then linking this strategy to the overall business
goals.
A collaborative research titled “Supply Chain Management Practices in
India” was taken up by Management Development Institute, Gurgaon, India
and KPMG India in this regard. The findings conclude that lapses exist, in the
manner in which supply chains are organized, all along the supply chains in
India.

Research objectives
The research study was taken up to address the concerns raised by managers,
expert professionals and academicians on issues of supply chain at the national
level.
IJPDLM This paper focuses on the status of supply chain management in India along
33,7 the four major dimensions of supply chain – namely supply chain strategy,
supply chain integration, inventory management and IT in the Indian set-up.
The reason for focusing on the first three dimensions for supply chains in India,
has been derived from the score of criticality of supply chain processes
(exhibited in Table I). With customer service/satisfaction scoring the highest in
586 terms of importance to business objectives and criticality to supply chain
strategy, it is imperative to focus on supply chain strategy and analyze its
alignment with business strategy. The criticality of demand management and
inventory management makes it necessary to look into the aspect of supply
chain integration and inventory management respectively. Finally a study of
the fourth dimension, IT, is essential as it is an “enabler” for businesses looking
forward to perfecting their supply chains all across the globe. It is the factual
component that provides the global scope needed to make optimal decisions
and on which decisions about each of the other dimensions are based.

Research methodology
To fulfill the research objectives, a comprehensive survey questionnaire was
designed to capture the facts, figures as well as qualitative responses about the
supply chain practices in organizations. It quantified the extent of deployment
of supply chain strategies, the structure of supply chain in various industry
sectors and the problems encountered in organizing supply chain systems by
organizations for strengthening supply chain management. A pilot survey was
conducted to access the appropriateness of the questionnaire for executives in
Indian organizations. The methodology adopted has been depicted in Figure 1.

Demographic details
The survey questionnaire was mailed across to 1,733 target organizations in
various industry segments in India. The target population was drawn from the
list of Confederation of Indian Industries (CII) and Associated Chambers of

Supply chain process Criticality score

Customer service 4.38
Demand management 4.22
Inventory management 4.19
Order processing/fulfilment 4.05
Manufacturing 3.97
Product development 3.53
Transportation 3.43
Distribution management 3.43
Table I. Import export management 3.32
Criticality of supply Promotion planning 3.18
chain processes Warehousing 3.03
 Supply chain
management
practices

587

Figure 1.
Schematic diagram of
research methodology

Commerce and Industry of India (ASSOCHAM) across all industry segments in

India. Responses were received from 156 companies, giving a response rate of 9
percent. As the response rate was low, there was a possibility of non-response
bias in the mail surveys. Although the response rate compares well with
research studies (Saxena and Sahay, 2000; Korgaonker, 1999a, b) conducted in
manufacturing sector across Indian organizations in the past and therefore
seems to be reasonably acceptable. Nevertheless, almost 91 percent of the
organizations receiving the survey questionnaire did not respond, raising the
issue of a non-response bias in the current study. Does this fact introduce any
bias to the data and implications derived from the responding organizations?
That is, do the results reported in this study misrepresent the true experiences
and opinions of supply chain management practices in Indian industry? This
issue was validated by using chi-square test with 95 percent confidence level
and found that:
.
The distribution of the response group by geographical area and industry
category shows no significantly different pattern relative to the
population data.
IJPDLM .
There are no significant differences in responses received before reminder
33,7 and after reminder. Reminders were sent to the organizations that did not
respond to the first mailing. The purposes of reminders was to get more
responses as to ensure representation of all the major industry and
regions and to provide data relating to any non-response bias in the
original survey. This facilitated analysis and also increased the number of
588 responses in each industry. As a result, the representativeness of the
response group was improved; that is, the non-response bias probability
was managed. As is typical, the response rate was approximately 5.6
percent of the first mailing and additional 3.4 percent after reminders.
This follow-up did assist in generating a reasonable overall response rate
of 9 percent and led to obtaining a representative picture supply chain
practice in Indian industry.
.
Further, the characteristics, experiences and opinions of the respondent
organizations after reminder are not significantly different to those
obtained by the first mailing.
Therefore validity was provided for the results of the representative sample
size and eliminating the non-response bias. The responses are comparatively
better from public limited company which constituted nearly three-fourths (75
percent) of the total sample, followed by private limited (18.6 percent) and
public sector (6.4 percent) organizations. Out of 93.6 percent responses from
private and public limited companies, 32.8 percent of responses were received
from multinational companies (MNCs). The profile of the respondents is
represented in the Figure 2.
The 156 responding organizations belonged to over 16 industry segments
including agri products, automotive, chemicals/fertilizers, computer hardware,
consumer durables, engineering, fast moving consumer goods (FMCG), metals,
oil/gas, pharmaceuticals, retail, telecommunications, textile/apparel and
transportation. However, the majority of the respondents were from
engineering, chemicals, FMCG/retail, automotive, consumer durables and

Figure 2.
Participation by
management level
electronics (Figure 3). However, results of the study may not been extrapolated Supply chain
for all individual industry segments because of the sample size not being management
representative for individual categories. practices
The respondents were requested to fill out a survey questionnaire so as to
elicit responses on the supply chain and logistics issues faced by their
organization. Quantitative responses were measured using a five-point Likert
scale ranging from 1 ¼ strongly disagree to 5 ¼ strongly agree. 589
In addition to the survey questionnaire, the response received was validated
through personal interviews by the research team. The research team
interacted with the top management of 52 of the responding organizations to
gain an insight into the business strategies and their focus toward supply chain
in achieving competitive advantage.

Research results and analysis

The results of the survey have been summarized, in the following sub-sections,
along the four major dimensions namely:

Figure 3.
Classification of
respondents by industry
IJPDLM (1) supply chain strategy;
33,7 (2) supply chain integration;
(3) inventory management; and
(4) information technology.
590 Dimension 1: supply chain strategy
Strategy can be defined as “a set of dynamic, integrated decisions that one must
make in order to position one’s business in the complex environment”. Thus,
strategy represents the overall actions or approach to be taken to achieve the
firm’s goals and business objectives (Gattorna, 1998). Today’s business
environment, as explained in the introductory sections, cannot be addressed by
strategies characterized by individual organizations looking to achieve
dominance against all competitors and solely relying on order-winning
criteria that are product-based. Instead, it requires a focus on synchronized
management of the flow of physical goods, associated information and allied
services from sourcing through consumption (Christopher, 2001). Supply chain
management covers the entire gamut in its decision-making framework. Hence,
the need for supply chain strategy for competitive advantage in contrast to what
it was earlier, demanding top-level management attention. By elevating supply
chain management to the heart of decision making in the boardroom, and uniting
corporate and supply chain goals, companies can boost profitability, enhance
growth and substantially increase the shareholder value (Sahay, 2000). The
challenge is to take supply chain to a more strategic level within the firm so as to
have a sustainable business impact, and not just be content with managing it.
Business objectives. All the organizations were asked to prioritize their
business objectives on a five-point scale, with a score of 1 indicating “not
important” and a score of 5 indicating “very important”. These strategic
objectives included maximizing profits, turnover, return on investment,
earning per share, value to shareholders and customer satisfaction. It is
heartening to note that the objective of increasing customer satisfaction
surpassed the objectives of maximizing profit and delivering highest value to
shareholders (Table II). The companies have realized that short-term profit
making does not lead to accomplishing long-term growth and profit
maximization. Hence, their emphasis on providing customer satisfaction.

Overall business objectives Weighted score for importance

Maximize customer satisfaction 4.82
Maximize profit 4.46
Increase turnover (sales) 4.37
Table II. Increase return on investment 4.28
Importance of overall Deliver highest value to shareholders 4.27
business objectives Increase earning per share 4.02
Supply chain objectives. Today’s business world is defined by change. Supply chain
Externally, there are powerful and global competitors, influential customers management
demanding more complex and varied services at less cost, and the increasing practices
implications of mergers and acquisitions. Internally, there are stock-holders
requiring a constant increase in returns. The future success of an individual
company will depend on its ability to weather and manage the forces of change. 591
When a company finds itself struggling to maintain profit margins, a renewed
focus on supply chain strategy becomes more important.
Analysis of weighted scores of various supply chain objectives indicate that
enhancing customer service/satisfaction outscores all other objectives in terms
of their effectiveness in the supply chain management. At the same time,
expanding revenue (sales), reducing inventory cost and improving on-time
delivery follow closely in terms of supply chain priorities (Figure 4).
Undoubtedly, all the four objectives stated above are the most vital and basic
criterion for any supply chain management strategy to produce tangible
results, which is well understood by the top management. Improvements in
these metrics have a direct effect on the bottom line of the organization.
Mapping business objectives with supply chain objectives. The supply chain
objectives were then subjected to a factorial analysis. The cumulative sum of
three-factor loadings explains over 52 percent of the variation. The three
factors were then compared with the weighted score for importance from
business objectives. The business objectives and the supply chain objectives

Figure 4.
Importance of supply
chain objective to top
management
IJPDLM could be broadly classified under three “key” focal areas (factors) – customer
33,7 service, profit maximization, operational excellence – as listed in the Table III.
A closer look at the supply chain objectives and business objectives covered
under each focal area (factor), reveal that the two are in congruence – with the
top as well as the bottom scores of each classification falling under the same
592 focal area. A comparative of the first focal area on “customer service”
highlights the fact that a key criterion of customer satisfaction is the quality of
the product and the availability of product. Quality of product is characterized
by “highly reliable product” and “best product performance” while availability
of product is a function of “expanding width/depth of distribution” and “having
products in stock”. These parameters are very much the guiding factor while
taking supply chain decisions in India to maximize customer satisfaction. The
second factor of “profit maximization”, matches the importance of “expanding
sales revenue”, “reducing inventory cost” and other cost factors with the
business objectives of maximizing profits and increasing sales turnover. This

Focal area Business objectivesa Supply chain objectivesb

High: customer service Maximize customer Enhance customer service/satisfaction

satisfaction (4.82) (4.93, 0.368)
Highly reliable product (4.57, 0.834)
Best product performance (4.51, 0.844)
Reducing transportation costs (3.96,
0.472)
Expanding width/depth of distribution
(3.62, 0.512)
Having products in stock (3.43, 0.660)
Medium: profit Maximize profit (4.46) Expanding revenues (4.56, 0.407)
maximization Increase turnover (sales) Reducing inventory costs (4.52, 0.672)
(4.37) Improving on-time delivery (4.43,)
Increase return on Lowest product cost (4.37, 0.572)
investment (4.28) Reducing order to delivery cycle time
Deliver value to (4.33, 0.859)
shareholders (4.27) Reducing lead time (4.28, 0.830)
Low: operational Increase earning per share Flexibility of production volume (4.17,
excellence (4.02) 0.679)
Flexibility of product mix (3.90, 0.679)
Innovating new product/services (3.88,
0.500)
Reducing warehouse costs (3.68, 0.441)
Reducing/rationalizing supplier base
(3.64, 0.633)
Offer broad product line (3.50, 0.702)
Table III. Notes:
a
Mapping supply chain Figures in brackets indicate weighted mean scores for each parameter
objectives with business b Figures in brackets indicate (weighted mean score, rotated factor loadings) for each parameter.
objectives Rotated factorial loadings have been computed using varimax method in Minitab
is shaped by the current environment – in which the companies operate in the Supply chain
Indian economic scenario – to drive productivity improvements in each management
business function. practices
Given that US companies appear to focus their efforts on cost reduction, it is
surprising that Indian companies are different. The reason for this difference
stems from the manner of evolution and development of manufacturing and
supply chain in the two countries. Supply chain practices in the USA started
593
with a focus on streamlining and integrating of various processes running
across functions and organizations. This was undertaken with the objective of
evolving a holistic view of all the activities undertaken in the supply chain. The
second stage involved making the supply chains customer-driven or customer
centric so as to deliver bottom-line results. The third stage was to pass on
further benefits to the end-customer, by focussing on cost, throughput and
delivery time. This is the crucial stage that helps make supply chains develop
the competitive edge for businesses.
While US organizations have moved over from integration of businesses to
demand-supply alignment to a focus on cost reduction, Indian organizations
are far from it. This has primarily been because of the business environment in
India, as stated earlier. With increasing competition ushered in by deregulation
and globalization, Indian companies have realized the need to have a high
degree of customer orientation in their business activities – both in terms of
product offerings and services. As the research data reveal, companies have
given highest priority to customer satisfaction as far as both business
objectives and supply chain objectives are concerned. However, they have
already begun to feel the global pressures of driving down costs. Thus, as far
as the evolution of supply chain is concerned, the Indian companies are no
different. However, they are definitely at a different stage of the development
and maturity of adoption of supply chain practices with respect to their US
counterparts.

Dimension 2: supply chain integration

The supply chain strategy cannot truly be aligned to overall business strategy
(unless all the functions of the enterprise are integrated and unless strategic
relationships have been established with supply chain partners) based on trust
and information sharing, so that it can quickly respond to customer’s demand
with unique and tailored offerings. Effective integration is the key because if
one of these links fail, the organization’s performance may suffer and may not
meet the expectations of its customers, or the service level of its competitors.
The primary benefit of integration is that all business units and supply chain
partners share the same data, synchronize actions and minimize distortions in
demand management (Kalambi, 2000).
Supply chain processes. In most of the organizations, supply chain
management covers the processes of demand management, manufacturing
IJPDLM planning and scheduling, inventory management, order processing and
33,7 fulfilment, warehousing, transportation, distribution management,
import/export management, product development, promotions planning and
customer service. The criticality of these supply chain processes was evaluated
by the respondents on a five-point scale. A score of 1 on the scale indicated “not
594 critical” and a score of 5 indicated “very critical” process for the organization.
Table I presents a weighted score for criticality of supply chain processes (on a
scale of 1 – low to 5 – high).
Customer service ranks as the most critical process for the respondents. As
many as 63.8 percent of organizations rate it as being “very critical” to their
supply chain strategy. Following closely are demand management, inventory
management and order processing/fulfilment with over 40 percent of the
respondent base in each category classifying them as “most critical”. The
supply chain processes like customer service, demand management, inventory
management and order processing/fulfilment show a sincere concern of the
Indian organizations to improve customer service as well as to depict their
increasing understanding of the need to perfect customer-centric processes.
The focus on inventory management gives testimony to the fact that the
Indian industry has realized that the inventory levels will have to be monitored
and maintained at the lowest possible level, without compromising on
customer service, in order to deliver superior bottom-line results. Surprisingly,
warehousing scores the lowest in terms of criticality among all the supply
chain processes. However, the process needs to be re-examined because of the
increasing importance of developing superior warehouse management systems
to back up the inventory management systems.
Management focus on supply chain processes. The individual scores on
important supply chain issues were then subjected to a factorial analysis.
The cumulative sum of three-factor loadings explains close to 60 percent of
the variation. The importance of supply chain processes under the three
factors were matched with the extent of time devoted by supply chain
personnel across the various constituents of supply chain like order
fulfilment, inventory, compilation of information for decision making,
distribution, statutory requirements, quality, to mention a few.
Table IV presents the weighted scores (on a scale of 1 – low to 5 – high) on
the extent of time devoted by supply chain personnel on various issues
pertaining to supply chain management and maps them with the three focal
areas of businesses identified earlier.
The results reiterate the focus on customer service among Indian
organizations, as an important constituent of business and hence supply
chain strategy. This is complemented with the management focus on
quality – to deliver “highly reliable product” and “best product
performance” – and demand forecasting to ensure availability of product.
 Supply chain
Management
focus management
Focal area Supply chain issuesa (time devoted) practices
High: customer service Customer service (4.30, 0.813) High
Quality (4.11, 0.691)
Demand forecasting (3.58, 0.544) 595
Medium: profit maximization Order fulfilment (4.20, 0.699) Medium
Inventory management (3.83, 0.667)
Compilation of information (3.57, 0.797)
Low: operational excellence Transportation (3.49, 0.621) Low
Distribution (3.35, 0.866)
Statutory requirements (3.18, 0.678)
Table IV.
Note: Mapping management
a
Figures in brackets indicate (weighted mean score, rotated factor loading) for each parameter focus with supply chain
Rotated factorial loadings have been computed using varimax method in Minitab issues

The second factor encompassing supply chain issues of “order fulfilment”,

“inventory management” and “compilation of information” sum up the
profitability of the business. With integration of various constituents of
business through technology yet to become a reality for the Indian
organizations, the above three areas take away a major chunk of
management time and energy. A positive observation here is the low levels
of time devoted to the issues related to operational excellence (third factor)
primarily on account of the increased outsourcing of these activities.
Supply chain processes matrix. For the purpose of the survey, the supply
chain processes were classified on a two-dimensional matrix (Figure 5):
(1) primary focus of process (enterprise vs intra-enterprise); and
(2) level of interaction required for the process (high vs low).
Enterprise covers processes which have a greater focus on internal processes
(e.g. product development, manufacturing) while intra-enterprise covers

Figure 5.
Supply chain process
matrix
IJPDLM processes having greater focus on processes external to the enterprise i.e.
33,7 oriented towards external stakeholders (e.g. demand management, customer
service, order processing/fulfilment).
Low level of interaction refers to low to medium level of interaction with other
enterprise and/or inter-enterprise processes, while high refers to medium to high
level of interaction with other enterprise and/or inter-enterprise processes.
596 It is interesting to note that processes that relate to enterprise supply chain
with low level of interaction with other processes come out as “less critical”.
However, those that involve intra-enterprise interface or integration with high
level of interaction with other processes emerge as “highly critical”.

Dimension 3: inventory management

Management of inventory has received considerable attention over the years.
Managers ascribe different reasons for holding or not holding inventory. Some
of the major reasons for holding inventories by Indian organizations include:
improving customer service; hedging against price changes and contingencies;
achieving production, purchase and transportation economies; protecting
against demand and lead time uncertainties; and balancing supply and
demand. They are also confirmed by the present study. Each of these
motivators is presented here under:
.
To improve customer service. As depicted in Table III, enhancing
customer satisfaction/service ranks high among the respondents for
achieving both business objectives and supply chain objectives. With
businesses wanting to enhance customer satisfaction, higher levels of
inventories need to be maintained to fulfill customer demand.
.
To hedge against price changes and contingencies. The research data
revealed that about 33.7 percent respondents indicated seasonality of
demand in their businesses with end of calendar year (October-December)
as the most common season (Figure 6).
Table V provides percentage of sales in season for percentage of
respondents. That is, more the seasonality factor in the demand and the
difference in demand requirement of products in season and during the
rest of the year, the more are the complications in supply chain design and

Figure 6.
Seasonality of demand
 planning. Businesses are forced to hedge against price changes and Supply chain
contingencies by maintaining high inventory levels so as to fulfill demand management
during the peak season. practices
The demand of products for Indian organizations varies not only
across seasons, but also within a month. This holds true for all the
months round the year. A total of 61.2 percent of respondents indicate a 597
month-end skew in sales and over one-third indicate year-end skewness in
sales, which is a very high figure (Figure 7). The extent of skew indicated
was 10-24 percent for 28.7 percent of the respondents, 25-50 percent for
40.7 percent of the respondents and over 50 percent for 20.4 percent of the
respondents. This not only increases the complexity of supply chain
management, but also is the main contributor to the building up of
inventory during the month.
.
To achieve production, purchase and transportation economies. Figure 7
depicts that 24 percent of respondents plan for finished goods inventory
based on manufacturing capacity. This is primarily to achieve production
and purchase economies, and results in excess inventory in the system.
.
To protect against demand and lead time uncertainties. The lead times in
the supply chain network in India are high. This is brought to the fore by
the respondents during the course of the study. About 15.8 percent of
respondents indicate a lead time of over a month to fulfill domestic orders.
About 45 percent of the respondents indicate one- to four-week lead time
and 55 percent of these would like to bring it down to below one week. A
total of 28.6 percent of respondents quoted a lead-time of up to a week and
25 percent of these would like to bring it down further (Figure 8).
Furthermore the research also reveals that only 50.8 percent of the
respondents have both an average shipment accuracy as well as average

% of sales in season % respondents

36.5 , 50
22.3 50-60 Table V.
25.9 60-75 Percentage of sales
15.3 75-90 during season

Figure 7.
Skewness of sales
IJPDLM
33,7

598

Figure 8.
Average lead time
(actual vs ideal) for
domestic order
processing

on-time order fill rate of over 90 percent forcing companies to carry

inventories to enhance customer satisfaction.
.
To balance supply and demand. Supply chain planning thrives on the
accuracy of demand forecasting. Respondents state having used a host of
techniques and methods for demand forecasting. Popular methods in use
for forecasting demand included simple average (23.8 percent), time series
(19.5 percent), regression (8.9 percent) and causal models (7.7 percent).
However, only 45.6 percent of the respondents indicated a forecast
accuracy of ^ 10 percent with about 32.4 percent at ^25 percent
(Figure 9). These accuracy levels are low forcing organizations to carry a
high level of inventory in the supply chain network.
Pull versus push – inventory replenishment process. In a push-based system, the
production decisions are based on long-term forecast. Typically, the
manufacturer uses orders received from retailer’s warehouses to forecast
customer demand, thereby taking a much longer time to react to the changing

Figure 9.
Percentage accuracy of
forecast
marketplace. In order to make the system more responsive, organizations are Supply chain
adopting pull-based systems for inventory replenishment. Globally, while management
pull-based systems are being much talked about, 84.1 percent of the practices
respondents indicate use of push-based inventory replenishment systems in
India. A few companies (15.9 percent) have turned to pull-based inventory
replenishment process, where inventory is replenished by suppliers, based on 599
movement of product on the shelves and amount of inventory remaining. As a
result the inventory replenishment process in a pull-based system, in which
production is demand driven, to co-ordinate with the actual customer demand.
It is surprising to note that in today’s environment where the customer can
almost expect his/her requirement to be customized, the push system dominates
all Indian industries, where most industries still believe in manufacturing to
build up stocks. Obviously most companies believe in the principle that they
should flood the distribution system with stocks, which would help increase
off-takes, and ward against the fear of losing sales to competition.
Inventory planning process for finished goods. Recent inventory management
practices dictate achieving zero stock levels for finished goods and taking up of
production against firm orders. However, only 11.1 percent of the respondents
indicate pure make to order (MTO) environment. 47.9 percent indicate planning
for finished goods inventory based on orders booked or existing order backlog
and 22.9 percent indicate planning for finished goods inventory based on
manufacturing capacity (Figure 10).
Globally, the stock holding policy is a function of the product characteristics.
Core business products which figure highly predictable flow rates should have
minimum (zero) stocks. Stock holding of seasonal products, which are slow
moving, critical, perishable and whose peaks are relatively predictable, are to
be minimized, building them only during peak demand period. Fad products,
with highly unpredictable levels of demand, high criticality and long lead
times, essentially must hold high level of stocks thereby allowing safety
margin for delivery, lead time and demand fluctuations (Gattorna and Walters,
1996).

Figure 10.
Rate of non-moving
inventory
IJPDLM Non-moving inventory. About 82.7 percent of companies indicate rate of
33,7 obsolescence of inventory to be less than 10 percent, while 3 percent indicate
the obsolescence at 25-50 percent (Figure 11) requiring an urgent focus by
organizations to release blocked resources.

600 Dimension 4: IT
Information is a driver whose importance has grown as organizations have
used it to become both more efficient and more responsive. The tremendous
growth of the importance of IT is a testimony to the impact information can
have on improving an organization. As the importance of information grows,
so does the importance of IT in gathering and analyzing those data to make a
decision.
Information deeply affects every part of the supply chain to maximize total
supply chain profitability. It serves as the connection between the various
stages of supply chain allowing them to co-ordinate their actions and schedule
daily operations. The scope of the supply chain that is covered by the IT
system and the system’s level of functionality help decide the applicability of
IT system for the supply chain. However, the choice of IT system needs to
make the trade-off between the cost of information (a reduction in efficiency)
and the responsiveness that information creates in the supply chain (Chopra
and Meindl, 2001).
IT budget and spending. Current levels of IT budget in the organization are
even less than 0.1 percent of gross sales for 13.5 percent of the respondents,
0.1-1 percent of gross sales for 42 percent and 1-3 percent of gross sales for 23.5
percent of the respondents. The overall average IT spending of 1.3 percent of
the respondents is definitely low compared with the overall global average of
4.93 percent on IT spending. However, organizations have planned for a major
increase in their IT investment levels in the coming years. The projected level
of IT budgets in the coming years are 1-5 percent and more of the gross sales
for over 47.6 percent of the respondents (Figure 12).
For most of the organizations the proposed IT budgets represent an increase
of over 100 percent in their IT spending in the coming years. With IT being the
bedrock for a successful supply chain strategy execution, this step should make

Figure 11.
Methods of inventory
planning for finished
goods
 Supply chain
management
practices

601

Figure 12.
Current and projected
levels of IT budget

the Indian organizations capable of reaping the benefits of supply chain

management.
Present usage of IT applications. A look at the usage pattern of software
packages in the organization reveals that there is a clear bias of using
stand-alone modules instead of adopting integrated solutions. A total of 61
percent of respondents are using software package for materials accounting in
the Indian environment. Software packages for enterprise resource planning
(ERP)/manufacturing resource planning (MRPII) and sales and distribution are
used by 48.6 percent and 43.8 percent respondents respectively. The high
percentage usage of ERP/MRPII packages despite low IT spending is because
of the fact that Indian companies prefer to use in-house developed software, as
compared with standard packaged solutions e.g. SAP, Oracle, Baan, etc. and
therefore, do not require large financial investments. As per our study, only 33
percent of respondents prefer to use packaged solutions whereas 67 percent of
companies use in-house/custom-developed solutions. Warehouse management,
supply chain management and demand management applications are yet to
percolate in Indian industry. The applications and the percent respondents
using them is presented in Table VI.
It needs to be noted that supply chain management solutions are used by
only 17.1 percent of the respondents, which is an area of concern in developing
supply chain capabilities. Software packages popularly in use by industry are:
.
Engineering, automotive – materials accounting, computer-aided design
(CAD) and drafting, ERP/MRPII.
.
Chemicals and fertilizers, FMCG – materials accounting, sales and
distribution.
.
Textile – sales and distribution.
.
FMCG – materials accounting.
.
Metal – process control and optimisation, shop scheduling and loading.
IJPDLM
Application % respondents using IT
33,7
Materials accounting 61.0
ERP/MRPII 48.6
Sales and distribution 43.8
CAD/drafting 32.9
602 Shop scheduling and loading 19.2
Warehouse management 17.8
Supply chain management 17.1
Process control and optimization 15.8
Demand management 13.7
Engineering data management 13.0
Table VI. Manufacturing execution system 11.6
Usage of IT applications Computer-aided process planning 9.6

IT applications – operations covered and proposed. Operations covered by

existing applications include inventory management, order fulfilment,
warehouse management and sales returns, in that order. Existing IT
solutions encompass the business operations covering inventory management,
order fulfilment, warehouse management and sales returns. All of these areas
are primarily restricted to the boundaries of the enterprise.
Operations to be covered with proposed applications include barcoding,
electronic data interchange (EDI) with customers, EDI with suppliers,
monitoring costs/performance, distribution network planning and freight
cost management. Table VII presents the coverage of various operations in the
existing and proposed applications.

Existing application Proposed application

Operation (% respondents) (% respondents)

Inventory management 60 14
Order fulfilment 46 25
Warehouse management 36 21
Sales returns 34 18
Monitoring costs/performance 30 29
Lot tracking 15 18
Distribution network planning 14 29
Freight cost management 10 29
Barcoding 8 36
Distribution requirement planning 8 18
Automatic freight payment 7 19
EDI with suppliers 5 33
Table VII. Facility network planning 5 23
Operations covered by EDI with customers 4 34
current and proposed IT EDI with carriers 2 25
applications Mobile solutions 1 18
Not surprisingly, the proposed IT solutions show a clear shift to areas which Supply chain
involve networking with business partners and focus on logistics. The future management
areas of operations for IT solutions include facility network planning, practices
barcoding, EDI with carriers, customers and suppliers, freight cost
management and mobile solutions being on the business plans of as many
as 80-90 percent of the respondents.
603
Where do we go from here?
Summarizing the analysis and the findings of the research data, the paper
proposes four actionable points for “perfecting the supply chain”. These have
been developed to address each of the areas explained in detail below:
(1) Align supply chain strategy with business strategy. First and foremost, it
is the alignment that matters. No matter which industry one chooses to
operate in, the supply chain strategy must holistically align with the
business strategy. Presently, a majority of Indian organizations have a
weak alignment of supply chain strategy with business strategy as a
result of which the actions do not result in bottom-line gains. This is
primarily so, because the organizations are rigidly structured along
functional lines with department-specific performance measures. They
have failed to adopt performance metrics, which are derived from a
supply chain objective to meet business needs. As a first step, Indian
organizations need to resolve the performance measurement issue so
that the departmental metrics are aligned with the overall supply chain
objective to meet the business objective.
(2) Streamline processes for supply chain integration. As the survey reveals,
most business executives in Indian organizations have realized the dire
need to straighten up their supply chains for profitability and
competitiveness. However, not many of them have given a serious
thought to putting an integrated structure in place. To overcome this,
Indian organizations need to change the way people think about supply
chains – the onus of which falls on the top management. It is this supply
chain “mindset” of evolving an integrated structure, which will
determine the end result. It also requires supply chain managers to
understand business processes that run across organizational
boundaries, establish their interdependencies, streamline or reengineer
them so that they meet customer requirements. It is only with thoughtful
and thorough understanding of business processes that such integration
can be achieved.
(3) Attack inventories through partnerships. Supply chain management
provides the ability to capture demands from the market, quickly
translate it to supplier requirement and finally fulfill consumer needs.
With no single entity competent enough to carry out all the activities in
the demand fulfilment process, the entire exercise involves forming
IJPDLM alliances with supply chain partners. Partnership and strategic alliances
33,7 form the bedrock of such a competitive supply chain strategy. It calls for
Indian organizations to collaborate with supply chain partners for
product design, product development, logistics, warehousing, market
reach, manufacturing and procurement – all with the objective of cutting
604 down inventories in the entire supply chain framework. However, this is
easier said than done. It involves a dual strategy of fostering trust as
well as optimising resources, performance and gains across the supply
chain. Successfully accomplishing this twin-objective requires a
reciprocal and continuing commitment of human, technical, and
informational resources on the part of supply chain partners.
(4) Deploy infrastructure and technology as an “enabler”. Technology, which
was earlier mistaken to be a driver for doing business in a particular
fashion, has become a “necessary” enabler for aligning business to
consumer demand. It can change the way we capture and analyse
information, differentiate products and services, configure and sell
existing products, crash order cycle times, introduce new products and
so on and so forth. IT can thus achieve breakthroughs in the area of
supply chain design, configuration and planning, which otherwise can
never be thought about. Not surprisingly, IT tools for Indian
organizations are still a luxury with organizations still preparing
themselves to harness its power to improve supply chains. However, to
compete in today’s environment IT tools are a necessity. The size of the
organization does not matter as fortunately the cost of technology has
been reduced so that even the smallest organization can now afford
them. Worldwide, best-in-class companies have invested in enabling
infrastructure and technology to realise their supply chain vision into a
reality. These include integrated supply chain cost models for decisive
inventory management, technology for handling supply chain
throughput, and information systems capable of fostering visibility
across functional and organizational boundaries. However, successful
supply chain management at the enterprise level depends heavily on the
state of the infrastructure scenario in the country. Undoubtedly, the state
of infrastructure in India has been impacting the industrial and economic
performance for long. It requires a concerted effort by the industry and
government to dismantle bottlenecks in the completion of
infrastructure-related projects and creation of demand-aligned
capacities in sectors of logistics and information technology.
Deployment of infrastructure and technology to foster collaboration,
flexibility, speed and accuracy would be the foundation for developing a
competitive supply chain framework for Indian organizations.
Conclusion Supply chain
The study has implications for Indian industry. This paper has outlined the management
supply chain practices followed by Indian organizations giving due coverage to practices
four dimensions namely supply chain strategy, supply chain integration,
inventory management and IT. It is recommended that Indian organizations
should align supply chain strategy with business strategy in order to deliver
highest customer satisfaction, streamline processes for supply chain
605
integration to achieve operational excellence, and form partnerships to
minimize inventory and maximize profits. In order to achieve these results the
paper suggests harnessing the power of IT. Coupled with this is the action
required by the Indian government to improve the infrastructure for the
smooth functioning of supply chain. The study may help the Indian industry to
benchmark their supply chain practices vis-à-vis supply chain practices in other
developing economies.

Further area of research

This research opens the way for other in-depth studies of some of the critical
processes identified for supply chain management practices. Detailed case
study analyzing some of these processes are a natural component to the results
presented above. For example inventory management problem may be further
explored in a form of a case study describing some of the methods used to
control and utilize stock level. Similarly, further research can be carried out
using a specific case to integrate supply chain strategy with business strategy.
Business-to-business transaction in India is at an infancy stage. Some detailed
study may be carried out in this area. Finally, research could also focus on
establishing actual performance improvements in supply chain management
reflected in cost-saving and customer satisfaction effects.

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