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Insight from industry The Indian supply chain architecture

B.S. Sahay Vasant Cavale and Ramneesh Mohan

Supply chain management: overpowering the changing rules of competition

Traditional organizational boundaries are a thing of the past. New realms of technology and convergence have created a plethora of new business opportunities, as well as challenges, to be tapped and mastered. To compete successfully in todays marketplace, organizations need concurrently to manage effectively and efficiently the activities of design, manufacturing, distribution, service and recycling of their products and services to their customers. Velocity, visibility, scalability, innovation, customerization and cost govern competitive advantage for organizations viewing the entire world as their market. Serving the right customers, finding the right suppliers, and fostering trust with the right partners have a great impact on todays as well as future business performance. To attain these multi-criteria objectives, it has become imperative for organizations, the world over, to tap the concepts of supply chain management (SCM) (Simchi-Levi et al., 2000; Sahay, 2000; Derocher and Kilpatrick, 2000). The concept of supply chain management is often traced back to Forrester (1958, 1961) who identified the dynamics of response to changes in demand in supply chain situations. Forrester identified that typically there is a distortion in demand patterns created by the dynamic complexity present in transferring demand from end users along a chain of supply to manufacturers and material suppliers. One of the key implications of this work was that the inter-dependence of participants in supply chains was highlighted, such that any participants potential to optimize performance would be constrained by the limitations inherent in the overall system. The complexity of the dynamics of the supply chain has led to the isolation of many different sources for this distortion such as flows of information between and within companies, material flows between companies and chaos theory (Evans et al., 1993; Towill, 1996; Wilding, 1998). Some authors (Ellram and Cooper, 1990; Houlihan 1985; Jones and Riley, 1985; Stevens, 1989) regard it as management philosophy to deal with integrated material and information flow right from raw materials to consumption of finished goods by the end-user. Cooper et al. 93

The authors B.S. Sahay is Professor at the Management Development Institute, Gurgaon, India. Vasant Cavale is Principal at KPMG India, Bangalore, India. Ramneesh Mohan is based at Hughes Escorts Communications Ltd, Gurgaon, India. Keywords Supply-chain management, Process management, Manufacturing, Management, Information technology, India Abstract With close to 22 percent of aggregate industry sales tied up in inventories in the entire supply chain network, what is it that ails Indian industry? Is it the way Indian supply chains are configured their orientation to processes to streamline business activities; their fusion of information technology to speed up business transactions; their approach to supply chain strategy to improve bottom line results that has restricted them from achieving global standards? The article, based on a recently concluded nationwide study titled ``Supply chain management practices in Indian Industry: 2000, throws up glaring facts about the current architecture of supply chains in India. The article concludes that though some Indian organizations are moving fast towards improving supply chain efficiencies, most of them are still far from realising its effect on business performance. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1359-8546.htm
Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . pp. 93-106 # MCB UP Limited . ISSN 1359-8546 DOI 10.1108/13598540310468698

The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

(1997), Novack et al. (1995) and Tyndall et al. (1998) emphasised that SCM is integrated and synchronised operational efforts to improve flow of material and product. Another stream of authors (La Londe, 1997; Ross, 1998; Davenport, 1993) believe that SCM is a management process. Handfield and Nichols (1999) state that the supply chain:
encompasses all activities associated with the flow and transformation of goods from the raw material stage [extraction], through to the end user as well as all information flows.

Analytically, a supply chain is simply a network of material processing cells with the following characteristics: supply, transformation, and demand (Davis, 1993). The essence of supply chain management is as a strategic weapon to develop a sustainable competitive advantage by reducing investment without sacrificing customer satisfaction (Lee and Billington, 1992). While reduced cost is typically a result, supply chain management emphasizes leveraging the skills, expertise, and capabilities of the firms who comprise this competitive network referred to (Helper, 1991). Besides, it also represents a paradigm shift that extends ones appreciation for the concepts of co-operation and competition in such a business environment (Best, 1990). While several studies have been conducted of supply chain management practices in specific countries and regions (Gilmour et al., 1995; Handfield and Withers, 1993; Ainsworth and Gold, 1995; Byrne and Markham, 1993; Cilliers and Nagel, 1994; McMullan, 1996; Cox, 1999), no study to date has examined India in its entirety. This article presents the results of a recently concluded nation-wide research survey on supply chain management practices of Indian organizations. The survey spanned more than 150 organizations in 16 industrial sectors and participation in the study involved board members, chief executives, general managers and senior executives.

competitiveness, organized by the Management Development Institute, Gurgaon during November 1998. The conference received an overwhelming response from Indian industry and was addressed by the whos who of Indian industry. More than 600 delegates, both from India and abroad, participated during the two-day event and deliberated on issues facing supply chain management in India. The proceedings of the conference were published in two volumes titled, Supply Chain Management for Global Competitiveness and Supply Chain Management in the Twenty-First Century. The international conference was a watershed event in exposing the focus of Indian organizations on managing their supply chains. The entire research study has evolved out of the concern of the managers, expert professionals and academicians participating in the conference, to address supply chain issues at the national level. The research team set out with the objective of first gauging the current status of supply chain management in the Indian industry in order to address the felt concern of Indian policy makers and managers. However, the joint research was undertaken with the following scope of work: To know the current practices of supply chain management followed in Indian organizations. To identify and develop appropriate measures for supply chain management processes and performance indicators. To undertake a cross-cultural comparison with global practices. To provide a benchmark for Indian companies looking to optimize their supply chain operations. To identify the drivers of enhanced supply chain performance. The respondents were requested to fill out a survey questionnaire from the perspective that best captured the supply chain and logistics issues faced by their organization. The objective of the questionnaire was to identify the extent of deployment of supply chain strategies, the structure of supply chains in various industry sectors, the problems encountered in organizing supply chain systems and the path being taken by organizations in strengthening supply chain management.

The research: supply chain management practices in India, 2000

The genesis of the research can be traced to the first ever international conference on supply chain management in India, Supply chain management for global 94

The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

The data were evaluated using a number of all-India as well as industry-specific frameworks created for this research. Aggregate as well as discrete analyses were carried out giving due importance to sector, region and process to assess the current state of supply chain management. The survey data were also rigorously analysed to get a snapshot view of the use of information technology (IT) in managing supply chain in the Indian industry.

Figure 2 Participation by management level

Industry participation
The survey questionnaire was mailed to 1,733 target organizations in various industry segments in India. The responses were received from 156 companies. The respondent companies represented a combined turnover of US$24.05 billion in the financial year 1999-2000. The responses were markedly better from public limited companies which constituted more than three-quarters (77 percent) of the total sample, followed by private limited (18 percent) and public sector (5 percent) organizations. Out of 95 percent responses from private and public limited companies, 33 percent of responses were received from multi-national companies (Figure 1). Individuals who responded ranged among the senior levels of the company, with the majority being at the director level and above. The profile of the respondents is represented in Figure 2. The responding organizations were distributed over a large number of industries including engineering, chemicals, FMCG, retail, automotive, textiles, metal, pharmaceuticals, trading, and telecommunications industries. However, the majority of the respondents were from
Figure 1 Classification of respondents by ownership

engineering, chemicals, FMCG/retail, automotive, consumer durables and electronics (Figure 3).

Almost one-third of companies have no supply chain strategy

Corporate recognition of the importance of supply chain is growing rapidly. Of the respondents, 68.7 percent have a supply chain strategy in place in their organizations, with over one-third having high involvement of the board of directors in the formulation of supply chain strategy. A total of 60.2 percent indicated high involvement of top management, chief executive, middle and
Figure 3 Classification of respondents by industry


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

operating management. Clearly, supply chain strategy formulation encompasses all the tiers of the managerial setup of these organizations (Figure 4). The involvement level is 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 (Figure 5). Customer service and order fulfilment were
Figure 4 Degree of participation in developing supply chain

the areas for which maximum time was allocated by supply chain personnel reiterating the focus on customer service, throughout the organization, as an important constituent of business and hence supply chain strategy. Surprisingly, inventory management is low on the agenda. Inventory management in a supply chain scenario is a double-edged sword. Inadequate inventory has the opportunity cost of lost business resulting in low revenues and excess inventory has the opportunity cost of blocked funds and

Figure 5 Time devoted for supply chain issues


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

obsolescence of goods. Indian organizations need to take a call on this in order to reduce costs and enhance revenues.

Linking management tools with critical supply chain processes

Customer service, demand management and inventory management rank high on the criticality-scale of supply chain processes, backed up by management tools of total quality management (TQM), benchmarking and just-in-time ( JIT). Customer service ranks as the most critical process for the respondents (Figure 6). Among these, as many as 63.8 percent of organizations rate this as being very critical to their supply chain strategy. Following closely are demand management, inventory management and order processing/fulfilment with more than 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 depicting their increasing understanding of the need to perfect customer-centric processes. In terms of the present usage of management tools, TQM appears the most matured tool (Figure 7) with over 50 percent of respondents using it. The tools of supply chain optimization
Figure 6 Criticality of supply chain processes

(SCO), JIT, ABC, BPR, enterprise resource planning (ERP), benchmarking, CAD/CAM and TPM were in use by 30-40 percent of respondents. These are traditional time-tested management tools, which were actively pursued by management. But the business environment has changed now. Interestingly, ERP, JIT, SCO have been in use for the last year to a certain extent. This is a step in the right direction for the Indian organizations trying to perfect their supply chains. In terms of current consideration for future usage, about one-third of the respondents were currently considering adoption of benchmarking, ERP, SCO, total productive maintenance and/or ABC costing, and a fourth were currently considering TQM and/ or BPR for actualization of business objectives. Benchmarking is the only tool that has withstood the sands of time because of the fact that this management philosophy helps organizations to move from one step to another. One important dimension in this benchmarking is the fact that organizations have graduated from internal to external benchmarking. This has helped businesses to learn from businesses outside the industry in order to reap extraordinarily high business success to their bottom line. Further in terms of awareness and non-consideration, about half the respondents were either not aware of or were not considering adoption of optimized production technology or computer integrated manufacturing even in the future.


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Figure 7 Usage of management tools

Push-based systems govern the manufacturing mindset

Manufacturing drives supply chain performance in several situations, requiring competence at the manufacturing and operations level of the supply chain. Globally while pull-based systems are being much talked about, only 15.9 per cent of organizations have turned to pull-based inventory replenishment processes. Of the Indian respondents, 84.1 percent indicate use of push-based inventory replenishment systems (Figure 8). In a push-based system, the production decisions are based on longterm forecast. Typically, the manufacturer uses orders received from retailers warehouses to forecast customer demand, thereby taking a much longer time to react to the changing marketplace. In order to make the system more responsive, organizations are adopting pull-based systems for inventory replenishment. A few companies (15.9 percent) have turned to pull-based inventory replenishment process,
Figure 8 Inventory replenishment process

where inventory is replenished by the supplier, based on movement of product on the shelves and amount of inventory remaining. As a result the inventory replenishment process in a pullbased system, in which production is demand driven, coordinated with the actual customer demand. It is surprising to note that in todays environment where the customer can almost expect his/her requirement to be customised, 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 distributor system with stocks, which would help increase off-takes, and ward off the fear of losing sales to competition. 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 MTO (make to order) environment. A total of 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 9). Globally, the stockholding policy is a function of the product characteristics. Core business products which exhibit highly predictable flow rates should have minimum


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Figure 9 Methods of inventory planning for finished goods

(zero) stocks. Stock holding of seasonal products, which are slow moving, critical, perishable and whose peaks are relatively predictable, are to be minimised, 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 levels of stocks thereby allowing safety margin for delivery, lead time and demand fluctuations.

Inventories are a hindrance to supply chain responsiveness

The money blocked in the form of inventories - raw material, work-in-process (WIP) and finished goods - is a measure of the responsiveness of the supply chain to market demand. The inventory, expressed in terms of number of days of sales, at any point of time determines the time taken to introduce a new product into the market and hence indicates the number of days the firm is removed from the market. On average, Indian organizations carry a total of 33.41 days of inventories as raw material and 14.25 days as WIP. The 6.44 days of GIT, along with 16.09 days of finished goods, reflect the poor state of supply chain infrastructure within the country (Table I).
Table I Inventory (in units of number of days of gross sales) Inventory Raw material Packing material Work in progress (WIP) Finished goods Goods In transit (GIT) Accounts receivables Accounts payables Inventory at CFAs/DCs Inventory at distributors Inventory at retailers Average 33.41 20.91 14.25 16.09 6.44 46.51 45.00 14.48 16.77 13.48 Overall Lower bound 1 1 0.1 1 0 2 2 2 3 1

Simple operational initiatives, viz. inter-modal transportation, cross-docking, FTL movements, palletization of stocks, global tracking systems could go a long way in reducing this component of supply chain inventories. The Indian industry, on an average, maintains an inventory turnover of 10.9 turns for raw materials and 22.7 turns for finished goods in the supply chain, which is very high compared to global standards. The inventory turnover indicates the velocity of the goods, i.e. the speed with which the goods move and are replenished in the system. The downstream constituents of the supply chain - namely, CFAs/DCs, distributors, retailers are a major carrier of inventories. Steps to reduce the inventory norms at the CFAs, distributors and retailers would not only reduces the money blocked in inventories but also the cost required to carry those inventories. It would in turn increase the speed-to-market as it would enable the Indian organizations to introduce products at a much faster pace and react faster to market conditions.

Outsourcing: an increasing trend for mixed reasons

Outsourcing is a popular management theme and continues to grow in popularity for Indian organizations. Transportation is the most outsourced activity with warehousing and manufacturing falling way behind in the line. In both the private sector and the public sector, organizations are increasingly turning over various internal functions or sub-functions to outside vendors. Recently however, the rule about what to outsource has

Upper bound 120 90 210 40 85 145 127 50 45 45

Lowest average

Industry sector Highest average Engineering (42.24) Chemical (24.83) Engineering (20.65) Consumer durables (23.33) Electronics (11.00) Engineering (72.00) Consumer durables (60.00) Consumer durables (24.67) Engineering (23.40) Automotive (30.00)

Consumer durables (25.00) Electronics (17.33) FMCG (4.40) Automotive (9.86) Automotive (4.08) FMCG (15.91) Electronics (25.00) Electronics (10.00) Electronics (3.00) Chemical (8.60)


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

been enlarged by considering everything outsourceable, regardless of whether it is a core competency or not. Another viewpoint suggests that a firm should especially outsource non-core competencies since they do not need to be world class anyhow. To find out the importance of outsourcing to Indian organizations, a set of nine processes were identified and the respondents were asked whether they outsourced them or not including the reason for outsourcing. The set of nine activities included: (1) customer service; (2) import/export management; (3) information systems; (4) inventory management; (5) manufacturing; (6) order processing; (7) procurement; (8) transportation; and (9) warehousing. Transportation (95.7 percent) was easily the most outsourced activity. The next in line were warehousing (41.9 percent) and manufacturing (36.7 percent) though less than half the number of organizations have outsourced them, till date, compared to transportation (Figure 10). Among the major reasons cited for outsourcing, include improvement in process effectiveness (24 percent), cost reduction (27 percent), as well as strategic reasons (28 percent) (Figure 11). Regarding the future of outsourcing, transportation (27.8 percent) as a process was the distinct choice of organizations to outsource even in the future. No doubt, there has been an increase in the number of third party logistic providers. Following closely are information systems (16 percent), import/
Figure 10 Extent of outsourcing of supply chain activities

Figure 11 Major reasons for outsourcing of supply chain activities

export management (15.2 percent), and inventory management (12.2 percent) as areas identified for outsourcing in the future. Thus it can be said that there is no magic wand that reveals whether a function or sub-function is an outsourced candidate. Organizations outsource different activities for different reasons. For strategic outsourcing, therefore, organizations must review the present status, contemplate the environment around them, assess their internal structures and capabilities, and decide what makes sense for their organization to outsource or not outsource.

Leveraging supply chains with IT

Technology is the enabler of quantum improvements, but IT achievements have been limited to date. Organizations project a quantum jump in the level of IT spending of 1-5 percent of gross sales in the coming years (Figure 12). The proposed IT budgets, represents 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


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Figure 12 Current and projected levels of IT budget

make the Indian organizations capable of reaping the benefits of supply chain management. The usage pattern of software packages in the organization reveals that there is a clear bias towards using stand-alone modules instead of adopting integrated solutions. Figure 13, showing the usage of IT applications, reveals 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. For adopting e-business applications, organizations seem to be graduating from one platform to the other in a methodical manner. Supply chain, e-commerce and data warehousing/mining have not been considered so far by over 30 percent of the respondents in each of the above stated categories. Interesting to note is the fact that
Figure 13 Usage of IT applications

out of the above three IT solutions, e-commerce outsmarts the other two under active consideration in over 34.7 percent of the respondent base (Figure 14). ERP and the Internet/intranet seem to be the maximum in usage terms covering nearly 40 percent of the respondent base. The high usage of intranet and the Internet is because of their ease of providing for internal and external corporate connectivity respectively. At the same time, ERP helps streamline business processes and drives operational efficiencies and therefore has found wide acceptance among the organizations in the last couple of years. Data reveals that it is the same set of organizations which are now looking for new IT solutions, graduating to supply chain, e-commerce and finally data warehousing/mining. An intriguing fact is that 13.8 percent of respondents have already considered but not invested in supply chain solutions. Though the good part is that they are well prepared for the future to minimise inventories and lead times, what holds them back is the preparedness of the organizations to implement these solutions.

Supply chain implementation: making it happen

Existing IT solutions encompass the business operations covering inventory management, order fulfilment and warehouse


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Figure 14 Present state of e-business applications

management. Organizations plan to increase inter-organizational connectivity using future supply chain applications covering bar coding, EDI with customers, EDI with suppliers, costs/performance monitoring, distribution network planning and freight cost management. More than 62.2 percent of the respondents have either undergone or were considering a review and redesign of existing supply chain network and management. As a result, 65.8 percent of survey participants are looking forward to adopting new or augmenting existing SCM solutions in the current year. Figure 15 presents the coverage of various operations in the existing and proposed applications. However, the proposed IT solutions show a clear shift to areas which involve networking with business partners and focus on logistics. The future areas of operations for IT solutions include facility network planning, barcoding, EDI with carriers, customers and suppliers, freight cost management and mobile solutions. These are on the business plans of as many as 80-90 percent of the respondents. Looking at the variety and complexity of algorithms used for achieving SCO by using IT solutions, there is a clear increase in the number of organizations ready to go in for package solutions (33 percent) or

custom developed solutions (38 percent). Although costly, they have realised that it is best for them to focus on their core business rather than building application development capabilities (29 percent) for the variety of solutions to be developed for supply chain management (Figure 16).

Alignment of supply chain strategy with business strategy

Enhancing customer service/satisfaction outscores all other objectives in terms of their effectiveness to the supply chain management. At the same time, expanding revenue, reducing inventory cost and improving on-time delivery follow closely in terms of supply chain priorities. Undoubtedly, all the four objectives stated above are the most vital and basic criteria for any supply chain management strategy to produce tangible results. Improvement in these metrics has a direct effect on the bottom line of the organization. Mapping supply chain objectives with the business objectives reveals that strategies for supply chains evolve toward supporting corporate strategies (Table II). Respondents emphasize enhancing customer service/satisfaction as the most


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Figure 15 Operations covered by current and proposed IT applications

Figure 16 Type of IT solution for future needs

important objective for effectiveness of supply chain management, very much in line with the business objectives. Organizations actively use number of customer complaints (59.6 percent), on-time deliveries (59.6 percent) and order cycle time (34.3 percent) as popular customer service measures across all the industry sectors. The business objective of increasing customer satisfaction surpasses the objectives of maximizing profit, increasing sales revenue, or delivering highest value to shareholders.

The impact on business performance is rewarding!

The long-term payback of planning and implementing a world-class supply chain can be profound. In fact, it means drawing attention to specific benefits like sales revenue

enhancements, lower operating costs, or higher market share or customer base and the like. The challenge is, how much can successful implementation or redesign of supply chain bring to the bottom line? According to Timothy Brown, of Andersen Consulting, Supply Chain Design Group, supply chain redesign is known to have saved organizations close to $100 million. The majority of organizations (43.2 percent) cited integration of processes with suppliers and customers as the biggest benefit associated with supply chain integration, followed by reduction in cycle time (28.1 percent), fundamental improvement through re-engineering (27.4 percent) and improved productivity (22.6 percent). Respondents indicated extent of benefits on various indicators. An average across the respondents is indicated in Table III. The majority of organizations expect improvements, of over 30 percent, in order-to-delivery cycle time, perfect order rates and inventory turnover through supply chain implementation. Although most business executives agree that supply chain management is becoming critical to profitability and corporate competitiveness, very few firms have been successful in translating the vision into an actionable framework of strategies, tactics and measures. The business case for supply chain management improvements and the potential


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

Table II Aligning supply chain objectives with business objectives Focal area High: customer service Business objectives Maximize customer satisfaction Supply chain objectives Enhance customer service/satisfaction Highly reliable product Best product performance Improving on-time delivery Expanding revenues Reducing inventory costs Lowest product cost Reducing order to delivery cycle time Reducing lead time Reducing transportation costs Reducing warehouse costs Flexibility of production volume Flexibility of product mix Innovating new product/services Reducing/rationalising supplier base Expanding width/depth of distribution Offer broad product line Having products in stock Importance to top management 4.93 4.57 4.51 4.43 4.56 4.52 4.37 4.33 4.28 3.96 3.68 4.17 3.90 3.88 3.64 3.62 3.50 3.43

Medium: profit maximization

Maximize profit Deliver value to shareholders Increase turnover (sales) Increase return on investment

Low: operational excellence

Increase earnings per share

Table III Improvements achieved with supply chain implementation Measureable indicators 1 2 3 4 Sales revenue increased Profits increased Order to delivery cycle time reduced Inventory reduction: Raw material WIP Finished goods 5 On-time delivery improved 6 Custumer base increased Extent of improvement (%) 20.2 15.5 32.8 25.1 38.7 32.1 33.4 27.7

for dramatic gains in operational performance are well known. Unfortunately, accompanying the dramatic growth has been the rising evidence that many implementation efforts tend to be late, over-budgeted, and when declared complete do not tend to meet the corporate expectations. This is likely to continue till the prerequisites for change, namely pressure for change, clear shared vision, capacity for change and actionable steps are not taken care of.

Supply chain management has made inroads in the operations of Indian organizations. A lot of them have evolved their supply chain strategies and are now in the phase of

implementing them. Interestingly, India has its own set of peculiarities about the functioning of consumer markets, which shapes the demand management process - the force which influences supply chain strategy, design, planning, initiatives and management. Indian organizations need to take the following recourses to multi-dimensional supply chain initiatives to meet the competitive business challenge: (1) Align supply chain strategy with business strategy. Presently, the majority of Indian organizations have a weak alignment of supply chain strategy with business strategy. This is primarily so because the organizations are rigidly structured along functional lines with department-specific performance measures. They have failed to adopt a process-oriented functioning style. Unless the performance measurement issue is resolved so that the departments are not in conflict by definition, attempts to align strategy will be unsuccessful. No matter which industry one chooses to operate in, the supply chain strategy must holistically align with the business strategy. In simple mathematical terms, supply chain alignment is the resultant of the vector sum of the three vectors superimposed in the plane of business strategy, namely: supply chain objectives, supply chain


The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

processes; and focus of top management on supply chain activities. The optimal strategic solution is ensured by a one-toone alignment of the three dimensions of both the supply chain strategy and business strategy framework. Misalignment, even along one dimension, sub-optimises the resultant and hence the efficiency and effectiveness of supply chain initiative. (2) IT is the key enabler. Technology, which was earlier mistaken to be a driver for doing business in a particular fashion, has become an 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 for harnessing its power to improve supply chains. But to compete in todays environment IT tools are a necessity, no matter the size of the organization; fortunately the cost of technology has been reduced so that even the smallest organization can now afford them. (3) Evolve a supply chain mindset. Last but not the least, it is the supply chain mindset which will determine the endgame. Supply chain management provides the ability to capture demands from the market, quickly translate it to supplier requirement and finally fulfil consumer needs. With no single entity competent enough to carry out all the activities in the demand fulfilment process, the entire exercise involves a host of handshakes with supply chain partners. Globally, industry leaders have fostered these handshakes with trust and built them in the form of partnerships amongst supply chain partners. Organizations may carry out the best alignment exercise and adopt the most suitable IT tools, but the business performance results may just not be sustainable without supply chain partnerships based on trust. Indian organizations have a great deal of thinking

to do while looking at their supply chain practices. Evolving the supply chain mindset of developing trust with supply chain partners involves sharing information, formulating a unified supply chain vision, working without contracts, undertaking a continuous dialogue for communication, understanding and addressing mutual supply chain concerns and evolving a winwin partnership to achieve bottom line results. The three steps are neither simple or an easy task to achieve. But the results are mindboggling. Worldwide, organizations which have addressed and perfected these have benefited from enhanced sales revenues, higher profit margins and improved customer service performance. They have drastically reduced logistics costs and inventory investments, while at the same time enhanced response speed of order-fulfilment. More important, their shareholder values have multiplied. In a nutshell, they have ended up enhancing wealth and creating value for all the stakeholders continuously. The results of not perfecting these paradigms of supply chains could see just the reverse. Those who ignore these paradigms will see their customers disappear in the face of competition.

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The ``Indian supply chain architecture B.S. Sahay, Vasant Cavale and Ramneesh Mohan

Supply Chain Management: An International Journal Volume 8 . Number 2 . 2003 . 93-106

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