Indiansupply Chain Pract Ic Es

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

Au str alia

GDP (US D b)*

Logis tic s Cos t as % of GDP

393.0

10-11

1237.1

14.5

India

460.0

14.0

Japan

3996.2

10.5

Korea

468.7

12.4

87.0

12.4

281.5

13.5

As ia n Regi on China Mainland

Singapore Taiwan * 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

1555.2

12.2

Canada

729.3

11.8

Mexico

637.3

14.4

10445.6

08.7

UK Nor th Am eric an Regi on

USA * World Competitiveness Year Book 2003

In tern ational Co mpa ri son of Custo mer Ori en tatio n Parameters

Product Quality

Product Design

On-Time Delivery

After-Sales Service

Managing 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 Inventories Losses Packaging Handling and Warehousing Customers' shopping

35% 25% 14% 11% 9% 6%

Order Size

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

Customer Demand Distributor Orders

Retailer Orders

Production Plan

Time

Order Size

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

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 (Material)

Manufacturing (Capacity)

Sales & Distribution (Demand)

C U S T O M E R Optimize to Mfg objectives

Optimize to Logistics obj

Optimize to 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)

Sources: plants vendors ports

Regional Warehouses: stocking points

Field Warehouses: stocking points

Customers, demand centers sinks

Supply

Inventory & warehousing costs Production/ purchase costs

Transportation costs Inventory & warehousing costs

Transportation 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%)

Public Limited (77%)

Private (18%)

Pa rti ci pa ti on by Man agemen t L evel Manager 16%

CEO/COO/CFO/ President 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 Maximize Customer Satisfaction

Weigh ted Score for Impor ta nce 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 Criticality Score

4

5

Inventory M anagemen t The Indian Scenario Inv entor y Averag es of days of sales] [as number

Over al l

Ind ustry Se ctor

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

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

CDs 23.3

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 Averag [as a % es of gross sales]

Over al l

Ind ustry Se ctor

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)

Completeness

Shipment Accuracy v/s OTOFR Matrix for Order Processing 0

90 29.7% Hopefuls

100 50.8% Leaders 90

17.6% Laggards

1.9% Hopeless

Timeliness (On-time Order Fill Rate)

0

Outsou rcin g What is the extent of outsourcing of supply chain activities? Inventory Management

Yes No

Order Processing Customer Service Procurement Import/Export Mgmt Information Systems Manufacturing Warehousing Transportation 0

10

20

30 40 50 60 70 80 90 Percentage Number of Respondents

100

Outsou rcin g What are the major reasons for outsourcing of supply chain activities?

Strategic Reasons 26%

Investment Reasons 12% Lack of Internal Capability 11%

Process Effectiveness 24%

Lower Cost 27%

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 3 Merchandising 4 Distribution Management 5 Promotions Management 6 Inventory Management 7 Manufacturing (Planning) 8 Transportation Management 9 Order Processing/Fulfilment 10 Product Development 11 Settlement and Payment 12 Demand Management

Supplier Involvement

2 Warehousing Management

3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 1.50

8 7

6

10

11

12

2

1

9

4 5 3

1.80

2.10

2.40

2.70

3.00

Customer Involvement

3.30

3.60

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% % Respondents using it

60%

70%

Supply Chain Strategy

Align in g S uppl y Ch ain Str ategy wi th Bu si ness Str ategy

26% Doers

27% Leaders

13% Laggards

34% Dreamers

Business Strategy

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

Supply Chain Objectives

Business Strategy 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 Objectives

Business Strategy

Supply Chain Strategy

Importance to Top Management Focus of Top Management

Supply Chain Processes

Management Processes

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. 2. 3. 4. 5.

Demand forecasting Lead time Batch ordering Price fluctuation 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.