BPCL

SUPPLY CHAIN ANALYSIS

Submitted to : Prof. Upendra Kachru

ASSIGNMENT 1

Date : 30/09/2011

Submitted by : Shounak Mondal 191055

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FMG 19 A

BPCL Scenario

Bharat Petroleum Corporation Ltd, a Navaratna public sector undertaking and a Fortune 500 company, formed the Supply Chain Optimisation(SCO) department in November 2006 with the strategic intent of maximising benefit for the overall corporation, improving dynamic capability and becoming more competitive in the total business process chain.This paper discusses the six core supply chain business processes that the SCO looks after, their linkages and development, and the SCO operating model, with an added focus on key practices that drive success in a highly complex environment.

Given its objectives, the SCO has to work through four fundamental sets of complexities. Firstly, it operates in a global context both at the supply side, and at the marketing end. The crude selection and supply is the international arm of the business, and the supply chain needs to drive decisions on exports imports versus domestic sales of different products. Secondly, the SCO inherently operates as a matrix organisation, working across different business units that could have conflicting goals or are used to more vertical ways of working. Thirdly, the SCO needs to drive value creation for the entire corporation, by creating a sense of passion for the company goal. Fourthly, short-term versus long term implications of decisions need to be balanced, from a strategic perspective.

The success of this initiative may be attributed to multiple practices. The focus on development is through a simple and integrated process using industry proven solutions and technology tools. The SCO team has been handpicked from a pool of not just high performers but those who can work collaboratively in a matrix organisation, towards success.

Indian Scenario: There is major transportation and other infrastructure bottlenecks related to SCM in India, including roads, railways, ports, shipping etc. Several new SCM related activities have started in India, these include, emergence of Page

trucking companies, information technology including service, containerization, private

warehousing, multi modal transport operators, inland container depots, container freight stations and third-party logistics providers. The average inventory turns is 4.5 per year. Over 50% of the inventories are of raw materials, due to inadequate control on the supply side. Supply chain performance is far satisfactory, in respect of lead times, inventories and deliveries. However, several action programmes have been undertaken by firms to improve supply chain performance. There is a growing trend to outsource supply chain related services; these include inventory management, transportation, warehousing, forwarding and clearing, information technology etc. However, service providers with adequate skills, competency and technology are limited.

Differences between BPCL Supply Chain and other Indian Companies No Supply Chain Metrics: The supply chain's overall performance depends on the performance of all the sites, and generally each site has its own management teams each with its own objectives and mission. The objectives of these sites may have little to do with supply chains overall objectives and worse they may conflict. The result is that sites in order to meet the goals may result in inefficiencies in this supply chain. A computer manufacturer of circuit assembly operations used cost per placement (cost incurred per unit before installment) as its performance measure in order to reduce its placement cost, but this had an adverse effect on overall supply chain performance. As a result the site had excessive inventory in order to operate in large lot sizes.

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Inadequate definition of Customer Service : A performance of supply chain must ultimately be measured by its responsiveness to customers. There are different definitions of responsiveness. Most companies measure the average line item fill rate (percentage of item request shipped prior to customer due dates). A customer order usually consists of multiple line items; for example, a personal computer dealer may order printers, computers, accessories and software in order. As dealers replenish their stock, these items therefore can be shipped individually without hampering business depending upon their availability. In these cases line items fill rate is good indicator of customer service. In some other cases customers can demand a single shipment of all items, example customers who need spare parts to carry out a repair job, in these circumstances it is important to measure the fill rate in terms of completed orders. Inaccurate Information and Poor Coordination : When customers' place orders, they want to know when their products will arrive. While writing, they may also want updated order delivery status, especially when the order is late. Proper attention should be paid to provide customers with timely and accurate updates on the status of late orders. The consequence dissatisfaction, confusion and loss of goodwill will be inevitable otherwise. Ignoring the Impact of Uncertainties: There are many sources of uncertainties in a supply chain: supplier lead time and delivery performance, quality supplier lead time and delivery performance, quality of incoming materials, manufacturing process time (including machine downtimes, process yields, and reworks), transit times and demand. To reduce the impact of these uncertainties, supply chain managers must first understand their sources and the magnitude of their impact. More and more companies are concerned with quality control and keep good statistics on incoming material quality and imperfections in the manufacturing process. The emphasis on just in time manufacturing has led to increased monitoring of supplier delivery performance. Little is known, however, about transit Page times specifically the lead-time from distribution to customers. Many companies only track their delivery or delivery performance by tracing an order from placement date to delivery date.

Simplistic Inventory Stocking Policies : This is a dynamic process; the uncertainties are constantly changing. Some suppliers become more reliable in both delivery and quality, others become less reliable. Demand for some items becomes predictable as products mature; demand for others becomes unpredictable. Inventory needs for some components stabilize as multiple products use common parts. Inventory stocking policies should be periodically adjusted to reflect such changes. Companies commonly use generic stocking policies that is all A stock keeping units (SKUs) have three weeks of safety stocks, B SKUs have four weeks and so on. Simple analysis reveals that the company could reduce forty percent of its inventory investment while maintaining the same level of customer service just by linking stocking policies of the uncertainties that require inventory in the first place. Incomplete Delivery Methods Analysis : Changing the mode of transportation can significantly affect inventory investment and service performance. However, transportation decisions are often based on economic consideration that do not take into account these important operational factors, which leads to reducing overall costs. These savings would come from inventory reduction in the transportation pipeline and shorter delivery lead times to the distribution centers. The distribution centers would need less safety stocks to provide the same level of customer service. Sometimes manufacturers in order to reduce transportation cost through single filled container, had to increase their delivery lead times which demands for higher safety stock level increasing inventory holding cost which generally offsets the savings from 'economical' container deliveries. Organizational Barriers : Sometimes entities of a supply chain belong to different organizations within a company, each organization having its own performance measures and evaluation responsibilities. Organizational Barriers that may inhibit co-ordinated inventory control to include differences in objectives and performance metrics, disagreements on inventory ownership's, and unwillingness Page to commit resources to help someone else.

For example supply chain for a motherboard of electronic goods manufacturing company consists of an integrated circuit manufacturing site supplying I.C.'s to the final assembly sites. The fabrication site belonged to the assembly division. The board fabrication time is long and variable, so the lead-time from I.C. site to the assembly site is long. Changing the levels of inventory at I.C. site and fabrication site can reduce the lead-time. Reducing lead-time will help the assembly division to deal better with market fluctuations. This will also reduce the assembly divisions stock of finished goods. The overall inventory investment in the supply chain will reduce. Such a re-allocation of the inventory will result in different levels of performance for the two sites. Since the sites belong to different departments they are reluctant to change, even if it is benefiting the whole supply chain. Incomplete Supply Chain : Going beyond the internal supply chain by including external suppliers and customers often exposes new opportunities for improving internal operations. Manufacturers commonly view their immediate customers such as retailers or other manufacturers as the end of the supply chain. Manufacturers with the hierarchy of distribution centers concentrate on inventory cost and service only upto the major distribution centers. Manufacturers often have service targets in the form of fill rate, the fraction of customer demands met without delay, but good service to dealers does not necessarily translate into good service to customers, manufacturers who do not consider the entire supply chain will have operational inefficiencies. Using fill rates as service targets is problematic; dealers have their own inventory control systems. For them, an 85% fill rate, with highly variant delays for the remaining 15% would probably be worse than a 0% off the shelf fill rate with a reliable re-supply time of one week. Understanding the dealers' inventory control systems is the only way for the manufacturer to accurately set internal service targets. Another benefit for incorporating dealers into the supply chain comes from sharing information. By knowing the dealers inventory levels, the manufacturer can respond accordingly. Similarly dealers who have access to the manufacturers' inventory status can respond to market changes more promptly. Page

How other companies can catch up with BPCL: Design for supply chain management According to this product designs should be evaluated not only on functionality and performance, but also on the resulting cost and service implications that they would have throughout the products supply chain. The same applies to process design. Integrated Databases throughout the supply chain Effective Operational control of the supply chain requires centralized co-ordination of key data from the different entities. Key data would include order forecast, inventory status at all sites, backlogs, production plans, supplier delivery schedules and pipeline inventory. The databases should be linked for easy retrieval of accurate information quickly from any point. Advancement in information technology has enabled the integration of databases between companies. The trend towards stronger vendor - vendee relationships certainly supports the need for database integration between different companies in an expanded supply chain. Integrated Control and Planning Support Systems Production planning and inventory control decisions at one site in supply chain affect decisions at other sites. The decisions taken on multiple sites should not be made independently; a system approach should be taken. Models for integrated control of multisite manufacturing and distribution system are just emerging (ERP). Institute Supply Chain Performance Measurement There is a need for new performance metrics, these should take the supply chain perspective and consider inventory measures across the supply chain and total response time instead of individual sites lead times. Instead of each entity being responsible for its own set of metrics, all entities should take ownership of the supply chain metrics. All the sites should be held accountable for the overall performance and customer service levels. Operations managers should measure performance regularly and frequently. Manufacturers should understand the needs of stakeholders that affect or are affected by the supply chain. This kind of understanding results in better targets and updating

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efficiencies, and exposing opportunities outside the supply chain.

Indian companies are yet to leverage the supply chain for competitive advantage and as such there are no initiatives to measure the performance of their existing supply chain systems. However, multinationals dealing in FMCG are fully exploiting the benefits and are also moving towards web-enabled supply chains.

In view of globalisation and liberalisation of the economy including EXIM policies, Indian companies are being forced to change their ways of doing business to meet the competitive pressure. In the recent past, many progressive companies are re-engineering their business processes and exploiting the use of Information Technology to challenge the ever-increasing competitive pressures in the market place. In this context, Supply Chain Management initiatives could be a competitive tool and measuring the performance against industry standards would go a long way in achieving international standards.

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