Con feren ce on

“Winning wit h Inte lli gen t Supp ly Ch ain s” ( WISC 2004)

India n Su pp ly Ch ain
Pract ic es

Dr. B.S. Sahay

Dean (Research & Consultancy)
Mana ge ment Devel op ment In stitute
Gurgaon, India

FICCI, 24 September 2004

 Pr esentati on A gend a
• Some Facts
• The Dynamics of Supply Chain
• Supply Chain Practices in India
• Supply Chain Processes
• Inventory Management
• Manufacturing Management
• Outsourcing
• Customer-Supplier Involvement
• E- Supply Chains
• Supply Chain Implementation
• Supply Chain Framework
• Recommendations
Some F ac ts
• GDP : Rs. 27.55 Lakh Crores*
• Inventory tied up : Rs. 1.17 Lakh Crores
• Logistics Cost : 14% of our GDP
• 1% Reduction in LC : Rs. 27550 Crorers
• 2% Reduction in LC : Rs. 55100 Crorers

* Economic Survey 2003-04

 Logis tic s C ost
Cou ntry GDP (US D b)* Logis tic s Cos t as
% of GDP

Au str alia 393.0 10-11

As ia n Regi on
China Mainland 1237.1 14.5
India 460.0 14.0
Japan 3996.2 10.5
Korea 468.7 12.4
Singapore 87.0 12.4
Taiwan 281.5 13.5
* World Competitiveness Year Book 2003
 Log isti cs C os t
Country GD P (US D b)* Logis tic s Cos t as
% of GDP
Eu rope an Region
France 1419.3 11.7
Germany 1987.0 11.8
Italy 1186.0 12.6
Netherlands 418.8 12.2
Spain 654.0 12.1
UK 1555.2 12.2
Nor th Am eric an Regi on
Canada 729.3 11.8
Mexico 637.3 14.4
USA 10445.6 08.7
* World Competitiveness Year Book 2003
 In tern ational Co mpa ri son of
Custo mer Ori en tatio n
Parameters Product Product On-Time After-Sales Managing
Quality Design Delivery Service Distribution
Brazil 52.39 56.62 36.34 39.15 51.83
Canada 68.13 58.06 62.19 62.50 66.45
France 55.94 66.96 44.64 45.56 66.09
Germany 92.50 71.39 88.06 78.61 75.83
India 41.08 34.05 30.27 41.08 52.43
Japan 92.68 81.46 93.17 89.76 72.20
Netherlands 72.89 63.11 69.78 68.44 74.76
South Korea 60.71 48.57 59.29 47.14 57.14
Thailand 63.00 58.50 57.00 54.00 66.50
USA 59.67 69.84 62.62 57.70 74.43

Note: Companies are rated 0=poor to 100=excellent

Elements o f L ogi sti cs co st
• Transportation 35%
• Inventories 25%
• Losses 14%
• Packaging 11%
• Handling and Warehousing 9%
• Customers' shopping 6%
 The D yn amic s o f the S upp ly
Ch ain
Order Size

Customer
Demand

Retailer Orders
Distributor Orders

Production Plan

Time
 The D yn amic s o f the S upp ly
Ch ain
Order Size

Customer
Demand

Production Plan

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Tra di ti on al Pl anni ng Ap pr oac h
Cha ract er ized by Sequ en tial , Deco mp ose d, Slo w

Procurement Manufacturing Sales & Distribution

(Material) (Capacity) (Demand)

C
U
S
T
O
M
E
R

Optimize to Optimize to Optimize to

Mfg objectives Logistics obj Sales & Mktg obj
“ Gl oba ll y” In tegr ated P lan nin g

“The sum of the local optima do not

equal the global optimum.”

(Goldratt, Theory of Constraints, 1986)

 Customers,
demand
Field centers
Sources: Regional Warehouses:
plants Warehouses: sinks
stocking
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
Wha t’s New i n S upp ly Ch ain ?
• Global competition
• Well informed more powerful Customers
• Customer Expectations
• Shorter product life cycle
• New, low-cost distribution channels
• Internet and E-Business strategies
Wha t’s New i n S upp ly Ch ain ?
• Global competition
• More powerful well informed customers
• Customer expectations
• Shorter product life cycle
• New, low-cost distribution channels
• Internet and E-Business strategies
 Resea rch Pr oject
Indian Supply Chain Management Practices

• Detailed Survey Questionnaire

• 1756 organisations
• Received 153 responses
• Major sectors represented in the all-India study - Agri
Products, Automotive, Chemicals/Fertilizers, Computer
Hardware, Consumer Durables, Engineering, FMCG,
Metals, Oil/Gas, Pharmaceuticals, Retail,
Telecommunications, Textile/Apparel
Pr of ile of Respo ndi ng
Co mpa nies
South
19%

North
38%

West
33%
East
10%
Respo ndents by Owner sh ip
Public Sector
(5%) Private
(18%)

Public Limited
(77%)
 Pa rti ci pa ti on by
Man agemen t L evel
CEO/COO/CFO/
Manager President
16% 14%

Vice President
17%
Sr.Manager
25%

Director/GM
28%
 Bu si ness O bjecti ves

Ove ra ll Bu sin es s Obje cti ves Weigh ted Score for

Impor ta nce
Maximize Customer Satisfaction 4.82

Maximize Profit 4.46

Increase turnover (sales) 4.37

Increase Return on Investment 4.28

Deliver Highest Value to Shareholders 4.27

Increase earning per share 4.02

 Supp ly C hain Ob jecti ves
Sup ply Chain Ob jec ti ves Wei gh ted Scor e
Enhancing Customer Service 4.93
Expanding Sales Revenue 4.56
Reducing Inventory Cost 4.52
Improving On-Time Delivery 4.45
Reducing Order to Delivery Cycle Time 4.33
Reducing Lead Time 4.28
Reducing Transportation Cost 3.96
Reducing Warehouse Cost 3.68
Reducing/Rationalise Supplier Base 3.64
Expanding Width/Depth of Distribution 3.62
Having Products in Stock 3.43
 Supp ly Ch ain Pr oc esses
Critical Processes

Warehousing
Promotion Planning
Import Export Management
Distribution Management
Transportation
Product Development
Manufacturing
Order Processing/Fulfillment
Inventory Management
Demand Management
Customer Service

0 1 2 3 4 5
Criticality Score
 Inventory M anagemen t
The Indian Scenario
Inv entor y Over al l Ind ustry Se ctor
Averag es of days of sales]
[as number Average Lowers Highers Lowers Highers

Raw Material 33.41 1 120 CDs 25.0 Engg 42.2

Work in Progress 14.25 0.1 210 FMCG 4.4 Engg 20.7

Finished Goods 16.09 1 40 Auto 9.9 CDs 23.3

Goods in Transit 6.44 - 85 Auto 4.08 Elec 11.0

Accounts Receivables 46.51 2 145 FMCG 16 Engg 72.0

Accounts Payables 45 2 127 Elec 25 CDs 60.0

Inv. at CFAs/DCs 14.48 2 50 Elect 10 CDs 24.7

Inv. at Distributors 16.77 3 45 Elec 3.0 Engg 23.4

Inv. at Retailers 13.48 1 45 Chem 8.6 Auto 30.0

Manu fac tu ri ng Man ag ement
What is the penetration level of
Inventory Replenishment Processes?

Push
84%

Pull
16%
 Lo gis tics Cos t
The Indian Scenario
Sup ply Chai n Co st Typ e Over al l Ind ustry Se ctor
Averag
[as a % es
of gross sales] Average Lowers Highers Lowers Highers

Cost of Material 52.92 15 90 CDs 35.5 Elect 69.5

Cost of Labour 8.90 0.51 70 CDs 4.9 Elect 12.9

Cost of Prod OH 11.78 0.5 40 Elect 3.5 Chem 12.1

Storage Cost 3.52 0.16 12 Elect 0.8 Auto 5.2

Inbound Transp Cost 3.38 0.12 20 CDs 1.3 Chem 4.0

Outbound Transp Cost 3.38 0.12 20 Auto 1.8 Chem 4.9

Warehousing Cost 2.06 0.1 8 Elect 0.3 Engg 3.1

Sec/Ter Transp Cost 2.02 0.2 10 Auto 0.5 Engg 3.4

Distributor’s Margin 6.35 0.1 20 Elect 2.0 CDs 9.7

 Order Fulfillment
Shipment Accuracy v/s OTOFR Matrix
for Order Processing

0 90 100
(Shipment Accuracy)
Completeness

29.7% 50.8%
Hopefuls Leaders
90
17.6% 1.9%
Laggards Hopeless
0

Timeliness
(On-time Order Fill Rate)
 Outsou rcin g
What is the extent of outsourcing
of supply chain activities?

Inventory Management Yes

Order Processing No

Customer Service
Procurement
Import/Export Mgmt
Information Systems
Manufacturing
Warehousing
Transportation

0 10 20 30 40 50 60 70 80 90 100
Percentage Number of Respondents
 Outsou rcin g
What are the major reasons for
outsourcing of supply chain activities?

Strategic Reasons Process Effectiveness

26% 24%

Investment Reasons
12%
Lower Cost
Lack of Internal 27%
Capability
11%
 Cu sto mer-Sup pl ier I nvo lvemen t
What is the level of customer & supplier
involvement in supply chain activities?
Customer Supplier Involvement
1 Import-Export Management
2 Warehousing Management
3 Merchandising
Supplier Involvement 3.60
4 Distribution Management 3.30 8

5 Promotions Management 3.00 7

6 9 10 11
6 Inventory Management 2.70
7 Manufacturing (Planning) 2.40 12
1 2
8 Transportation Management 2.10 4
5

9 Order Processing/Fulfilment 1.80 3

10 Product Development 1.50

11 Settlement and Payment 1.50 1.80 2.10 2.40 2.70 3.00 3.30 3.60
12 Demand Management
Customer Involvement
e-Enablement of Supply Chains
What is the usage pattern of
IT Applications?
Computer Aided Process Planning

Manufacturing Execution System

Engineering Data Management
Demand Management
Process Control & Optimisation
Supply Chain Management
Warehouse Management
Shop Scheduling & Loading
CAD/Drafting
Sales & Distribution
ERP/MRPII
Materials Accounting

0% 10% 20% 30% 40% 50% 60% 70%

% Respondents using it
Align in g S uppl y Ch ain Str ategy
wi th Bu si ness Str ategy
Supply Chain Strategy

26% 27%
Doers Leaders

13% 34%
Laggards Dreamers

Business Strategy
Fr am ewor k f or Sup pl y
Ch ain S tra tegy
Business
Objectives

Business
Supply Chain Strategy
Objectives
Supply Chain
Strategy

Management
Processes

Supply Chain
Processes
Importance to
Top Management
Focus of Top
Management
Align in g S uppl y Ch ain Str ategy
wi th Bu si ness Str ategy
Business Objectives

Supply Chain Business

Objectives Strategy

Supply Chain
Strategy
Management
Supply Chain Processes
Importance to Top
Processes
Management

Focus of Top Management

Su pp ly Ch ains I mp lementati on
What are the benefits achieved by
supply chain implementation?
Meas urab le Ind icators Ex te nt o f I mp ro veme nt
1. Sales Revenue Increased 20.2%
2. Profits Increased 15.5%
3. Order to Delivery Cycle time Reduced 32.8%
4. Inventory Reduction
a. Raw Material 25.1%
b. WIP 38.7%
c. Finished Goods 32.1%
5. On Time Delivery Improved 33.4%
6. Customer Base Increased 27.7%
How to ac hieve th e des ire d res ul t?
Su pp ly Cha in: A Pa ra digm S hift
• Companies will collaborate with SC partners and
synchronised operations.
• Technology will be key enabler for innovative
SC strategy
• SC restructured and reskilled to achieve the
goal
 Th an k Yo u

Ind ian Supply Chai n Pract ice s

Bul lwh ip E ff ect: V ari abi lity -
Co ntr ib uting Fa cto rs
1. Demand forecasting
2. Lead time
3. Batch ordering
4. Price fluctuation
5. Inflated Orders – supply shortage is suspected.
 Ho w to Co p wi th Bul lwh ip
Effect?
• Reducing uncertainty
• Make information at each stage available to others.
• Reducing demand variability
• Regular low price; no promotion
• Reducing lead time.
• Strategic partnerships
• Vender Managed Inventory
• Incentive to make customer’s demand data
available.