Supply Chain Management In Renata Limited

Information System & Supply Chain Management (RENATA LIMITED)

Information System &

Supply Chain Management i

(RENATA LIMITED) Submitted To Muhammad Bakhtear Uddin Talukdar Course Teacher Financial Information System & IT in Business (F-406) Department of Finance University of Dhaka

Submitted By Mohammed Areful Islam Ferjana Yesmin Nusrat Jahan Azad Shayala Sharmen Shathi Reza Ahmed Md. Asraf Ali Sayma Siddiqui Hasan Mahmud Jeetu Md. Abu Sufian Noor Hossan Sohag

10-052 10-095 10-096 10-097 10-110 10-111 10-119 10-124 10-127 10-129

Date of Submission: February 07, 2009 ii

February 07, 2009 Muhammad Bakhtear Uddin Talukdar Course Teacher Financial Information System (F-406) Department of Finance University of Dhaka Sub: Presenting the paper you assigned for the course Financial Information System. Dear Sir With due respect, we want to inform you that, we were given the opportunity to prepare a report on Information Systems & its Supply Chain Management, as a partial fulfillment of the requirement of the course Management Information Systems(F – 406). This was really a very interesting & important opportunity for us to work on. During the course of this assignment we experienced every nook and corner of an organization (Renata Ltd.), which gives us a lot of insights and understanding about the overall condition of the organization’s information systems & how it is maintaining its supply chain system. We want to express our hearty gratitude to you for giving us such an excellent opportunity to analyze the current scenarios. We are ready to provide any additional information should you require & look forward to perform such interesting job again & again. Sincerely Yours Sayma Siddiqui (On behalf of the Group) Enclosure 1. The Paper

ACKNOWLEDGEMENT

iii

The course teacher, Muhammad Bakhtear Uddin Talukdar, deserves the thanks for assigning the topic and for necessary instruction. We also would like to give thanks all the officers of Renata Ltd. specially Mr. Shibbir Ahmed, IT Manager, Renata Ltd. & Mr. Shofiqul Islam, Marketing Manager, Renata Ltd. who helped us a lot providing all the necessary information. We also thank others who helped us complete this report.

iv

Table of Contents

v

No. Part: one

Part: Two

Part: Three

Part: Four

vi

Topic

Page No.

Executive Summary About the company Company Background Company description Product and services Information system Introduction Dimensions of Information System in Renata

vi 03 04 05 05 07 08 09

Organizations Management:

09 09

Information Technology IS and SCM

10 11

Supply chain management Developments in supply chain management Practice by Renata Limited Supply Chain Models Setbacks in supply chain management Options for restructuring supply chain E-supply chain management IS infrastructure for supply chain management Supply chain process: Information and supply chain management Supply Chain Management Application Supply chain performance measurement Demand driven supply chain: Systems as planned organizational change Strategic analysis or critical success factors Practice by Renata Limited Software used by Renata Goods Distribution Process Demand planning & Supply Planning The concept THE demand planning The supply planning Recommendation & Conclusion

12 13 15 16 17 18 22 24 26 29 30 30 31 32 34 35 36 37 38 39 40 41 43

EXECUTIVE SUMMARY Supply chain concept is extended to the activities started from the raw materials suppliers through the organization to the end consumer. Once thought only as the Physical Distribution Management (PDM), that is the logistics management, has now been the part of Enterprise Resources Planning (ERP). From a set of activities is now considered a part, module, of an integrated system.

vii

There has been a change in supply chain management thinking from a push oriented supply chain that emphasizes distribution of a product to passive customers to a pull-oriented supply chain that utilizes the supply chain to deliver value to customers who are actively involved in product and service specifications. Electronic communications have played a major role in facilitating new models of supply chain management. Technology applications that have facilitated supply chain management are the E-mail, Intranets, Extranets, Electronic Data Interchange (EDI) and lately interfacing of ERP system with B2B intermediary sites or Exchanges. Our studied company, Renata Limited, also has got a Distribution Channel Management (DCM) that works in the downstream supply chain arena while upstream one is still managed conventionally with the help of mail or ecommerce solution. Over competition in the industry and the cost leadership approach have been making the pace of change a bit slower and they are still being led by the existing system, we can say legacy system. They still maintain a good amount of safety level that cost time and hazards. But we see some improvement in database management that works in downstream arena is helping them a lot. Since the market driving force is the marketing to doctors and chemist, any sophisticated system, in their words, is only contributing to curtailed profit. But some part of the industry is doing better in quality and excellence in export while others whose market share are inside the boundary are adjusting themselves to the situation. Renata Limited is envisaging to introduce ERP to strengthen their foothold in and outside of the country as they are also a recognized one to enter the EU market. It is now the time and the will to shift themselves from the legacy to a contemporary system, we understand.

Origin of the report The report is a requirement of the course of Financial Information System (406). The topic of our report has been duly approved by my course teacher, Muhammad Bakhtear Uddin Talukder. The reason behind choosing this topic is to evaluate the information system practiced in our country. This report therefore shows how much the companies of our country use information system to operate their functions.

viii

Objective of the report General objective is to see that how an organization cope with the information system to effectively make decisions and operate functional activities. Assess the level of importance of supply chain management of the company and also to determine how well the company meet up the compliance of information system. More specific objective is to provide information on Renata Ltd. & their supply chain management.

Scope The scope of this report is limited to the overall description of the company, their information system-hardware, software & Information technology configuration, information system planning, supply chain management, their demand planning and supply planning.

Methodologies In this study, exploratory research was undertaken to gain insights and understanding of their system and for preparing the assignment. To prepare this term paper, we have collected information from different sources: company personnel, things provided by the organization, internet searching and our peer group. Some information, which was not available from any of the sources, was assumed. After that a more comprehensive conclusive research was undertaken to fulfill the main purpose of the study.

Limitations of the study ⇒ Delays in getting the necessary materials to collect information from different sources ⇒ Large-scale analysis was not possible due to constraints of data ⇒ Large-scale analysis was not possible due to constraints of time ⇒ Some parts on the report were written from individual’s perception and may vary from person to person, thus made hypothetically. ⇒ Information provided by the concerned organization was not satisfactory ⇒ Some of the internal information is difficult to get

ix

About the Company x

COMPANY BACKGROUND Renata Limited is a public limited company incorporated in Bangladesh, with more than Tk. 2.3 billion in assets. The company manufactures and sells various pharmaceutical products, animal health, animal nutritional, oral saline, hormone products and other medical products in the local and foreign markets. The company has two subsidiary companies; Renata Agro Industries Limited and Purnava Limited. They have manufacturing contract with Eskayef for Cephalosporins, with UNICEF and SMC for Sprinkles. The trademark of Renata is assigned from Pfizer and Hoechst with manufacturing technology. In 2007 Renata has received a Certificate of GMP Compliance for its Potent Products Facility from MHRA2, UK and it is the only Bangladeshi company to receive it. The company’s largest subsidiary, Renata Agro Industries Limited, is a private company limited by shares incorporated in 1997. The principal activities of the company are to carry on business for producing and sale of various agro based products, and poultry breeding and hatching and sale of poultry products. The company commenced its commercial operation from October 1998. Since then it has been operating as successful company. Renata Agro is now financially strong and declared a dividend of 30% on paid-up capital in the last year.

xi

Another subsidiary, Purnava Limited, was incorporated as a private limited company in 2004 to explore the prospects of entering into Fast Moving Consumer Goods (FMCG). The principal activities of the company are to carry on the business of manufacturing, marketing and distribution of all kinds of consumer goods, consumer durables, food items, sugar confectioneries, edible oils, beverages etc, raw materials, semi-finished items, producers, goods and various other products of local or foreign origin and to engage in the business as traders, importers, exporters, commission agents of all kinds of goods and services including pharmaceutical drugs and medicines. But the company has not started production yet. Renata has a relatively flat management structure. S. H. Kabir is the Chairman of the board and Syed S. Kaiser Kabir is the Managing Director of the company. Renata Limited is well known for its corporate social responsibility. Institutional shareholders own as much as 15% of total share of the company.

COMPANY DESCRIPTION Renata Limited is the holding company for Renata Agro Industries Limited and Purnava Limited. Starting in 1972 as Pfizer Laboratories (Bangladesh) Limited, subsidiary of Pfizer Corporation, USA this company was renamed as ‘’Renata Limited’’ in 1993 after divestment of shareholdings by Pfizer corporation, USA. The company operates by manufacturing pharmaceutical products, animal health medicines, nutritional and vaccines. It was listed in Dhaka Stock Exchange in 1979.

Products and Services Renata Ltd. is the market leader of Animal Health in Bangladesh. Together with, Renata Ltd. is famous for its pharmaceuticals product. Some of those are listed below: Anto-bacterial preparation: Cephalosporins is one of the most sold anti-bacterial product of Renata ltd.

Anti-ulcerant Preparation: xii

Omeprazole is one of the most reknowned anti-ulcerant product of Renata Ltd.

Anti-spasmodic Preparation: Tiemonium is the best anti-spasmodic product of Renata Ltd.

Anti-hemorrhoidal Preparations Diasmin & Hesperidin is also an effective anti-hemorrhoidal Preparation.

NSAID Preparations Piroxicam is also an effective medicine of NSAID Preparation.

Anti-allergic Preparations Fexofenadin HCL is a famous medicine for allergic patients.

Anti-Diabetic Preparations Gliclazide is used for diabetic patient.

Cardiovascular Preparations

xiii

Amlodipine is an effective medicine for cardiovascular patients.

Information Systems

xiv

Introduction An entirely new internet business culture is emerging with profound implication for the conduct of business. We can see this everyday by observing how businesspeople work using high-speed internet connections for e-mail & information gathering, portable computers connected to wireless networks, cellular telephones are connected to the internet, and hybrid handheld devices delivering phone, Internet, & computing power to an increasingly mobile and global workforce. Information system (IS) can be defined technically as a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control, information systems may also help managers and workers analyze problems, visualize complex subjects and create new products. By information we mean data that have been shaped into a form that is meaningful and useful to human beings. Data in contrast, are streams of raw facts representing events occurring in organization or the physical environment before they have been organized and arranged into a form that people can understand and use. Three activities in an information system produce the information that organizations need to make decisions, control operation, analyze problems and create new products or services. These activities are input, processing and output. Input captures or collects raw data from within the organization or from its external environment. Processing converts this raw input into a more meaningful form. Output transfers the processed information to the people who will use it or to the activities for which it will be used. Information system can be both formal and informal. Informal information systems such as office gossip networks rely on unstated rules of behavior. There is no agreement on what is information or on how it will be stored and processed. Formal information systems are structured, they operate in conformity with predefined rules that are relatively fixed and are not easily changed. Formal information system can be either computer based or manual based. Manual systems are paper based, in contrast Computer-based information systems (CBIS) rely on computer hardware and software technology to process and disseminate information. A manager & potential entrepreneur can use information technology & systems to create differentiation from the competitors and strategic advantage in the marketplace. xv

Dimensions of Information System in Renata Renata uses both the manual and computer based information system. Manual systems serve important needs in Renata but they are not the main focal point of our analysis. In the computer based information system Renata uses an array of infoamation technologies including bar-code scanning systems, handheld computers, intranet network, the internet, and many different pieces of software for tracking packages, calculating fees, maintaining customer accounts and managing logistics. There are three dimensions of information Systems in Renata Organizations, Management, & Information Technology.

Organizations The organizational structure of Renata is composed of different levels and specialties. Their structure reveals clear-cut division of labor. Experts are employed and trained for different functions consisting of sales and marketing, manufacturing and production, finance and accounting, and human resources. They coordinate work through a structured hierarchy and through its business process. The hierarchy of Renata arranges people in a pyramid structure of rising authority and responsibility. The upper level consists of managerial, professional, and technical employees whereas the lower levels consist of operational personnel. Business process includes formal rules that have been developed over a long time for accomplishing tasks. This rules guides employees in a variety of procedures, from writing an invoice to responding to customer complaints.

Management: Managers perceive business challenges in the environment; they set the organizational strategy for responding to those challenges; and they allocate the human and financial resources to coordinate the work and achieve success. Managerial roles and decisions vary at different levels of Renata. Senior managers make long-range strategic decisions about what products and services to produce. Middle managers carry out the programs and plans of senior management. Operational managers are responsible for monitoring the firm’s daily activities.

xvi

Information Technology Information technology is one of many tools managers use to cope with change. Renata uses Computer hardware, software, and storage and communication technology for IT purpose. Computer hardware is the physical equipment used for input, processing and output activities in an information system. Computer software consists of the detailed, preprogrammed instructions that control and coordinate the computer hardware components in an information system. Storage technology includes both the physical media for storing data, such as magnetic disk, optical disc, or tape and the software governing the organization of data on these physical media. Communication technology, consists of both physical devices and software, links the various piece of hardware and transfers data from one physical location to another. Network links two or more computers to share data or resources such as printer.

xvii

Information System & Supply Chain Management

Supply Chain Management (SCM) involves the coordination of all supply activities of an organization from its supplier and delivery of products to its customers. It’s essentially the optimization of material flows and the associated information flows involved with an organization’s operations. Supply Chain Management (SCM) includes not only supplier and buyer, but also the intermediaries such as the supplier’s suppliers and the customers’ customers. It is the coordination of supply activities of an organization from its suppliers and partners to its customers. For most commercial and not for profit organization we can distinguish between upstream supply chain and down stream supply chain. xviii

An organization’s supply chain can be viewed from a systems perspective as the acquisition of resources (inputs) and their transformation (processes) into products and services (outputs) which are then delivered to customers. Such a perspective indicates that as part of moving to e-business, organizations can review the transformation process and optimize it in order to deliver products to customers with greater efficiency and lower cost. The position of the system boundary for the SCM extends beyond the organization- in involves not only improving the internal processes, but also processed performed in conjunction with suppliers, distributors and customers. The process perspective has also a strategic importance that provides great opportunities to improve product performance and deliver superior value to the customers. As a result, Supply Chain Management can dramatically have an impact on the profitability of a company through reducing operating costs and increasing customer satisfaction and so loyalty and revenue. Upstream supply chain is the transactions between an organization and its suppliers and intermediaries, equivalent to buy side e-commerce. On the other hand downstream supply chain is the transactions between an organization and its customers and intermediaries, equivalent to sell side ecommerce. For the companies that have first-tier suppliers, second-tier and even thirdtier suppliers or first-, second- and higher-tier customers maintain a supply chain network. A supply chain network is the link between an organization and all partners involved in multiple supply chain.

Developments in supply chain management Over the time modern technology and improved concepts like e-commerce and logistics have contributed to the development of supply chain. We can shoe it in chronology as following

Physical Distribution Management THE Physical Distribution Management (PDM) focuses upon the physical movement of goods by treating stock management, warehousing, order processing and delivery as related rather than separate activities.

xix

Although information systems were developed to manage these processes they were often paper-based and not integrated across different functions. However, some leading companies started using EDI at this time. PDM was essentially about the management of finished goods but not about the management of materials and processes that impacted upon the distribution process. PDM was superseded by logistics management which viewed manufacturing storage and transport from raw material to final consumer as integral parts of a total distribution process.

Material Requirement Planning (MRP) and Just-In –Time (JIT) Logistics Management The Just-in –time (JIT) philosophy is still a relatively recent development of logistics management, its aim being to make the process of raw materials acquisition, production and distribution as efficient and flexible as possible in terms of material supply and customer service. Minimum order quantities and stock levels were sought by the customer and therefore manufacturers had to introduce flexible manufacturing processes and systems interfaced directly with the customer who could call an order directly against a prearranged schedule with a guarantee that it would be delivered on time.

Materials Requirement Planning systems were important in maintaining resources at an optimal level. The design for manufacture technique was used to simplify the number of components required for manufacture. However, none of the above methods looked at the management of total supply chain. An associated phenomenon is lean production and lean supply where supply chain efficiency is aimed at eliminating waste and minimizing inventory and work in progress.

Supply chain management and Efficient Customer Response Effective management of supply chain involved much closer integration between the supplier, customer and intermediaries and in some instances involved one organization in the channel taking over functions that were traditionally the domain of the intermediary. Bottlenecks or

xx

undersupply/oversupply can have a significant impact on the organization’s profitability. The two primary goals of supply chain management are to maximize the efficiency and effectiveness of the total supply chain for the benefit of all the players, not bust one section of the channel, and to maximize the opportunity for the customer purchase by ensuring adequate stock levels at all stages of the process. These two goals impact upon the sourcing of raw materials and stockholding. A recent phenomenon has been the rapid in global sourcing of supplies from preferred suppliers, particularly amongst multinational or global organizations. The internet will provide increased capability for the smaller players to globally source raw materials and therefore improve their competitiveness. The internet will revolutionize the dynamics of international commerce and in particular lead to the more rapid internalization of small and medium sized enterprise. The web will reduce the competitive advantage of economies of scale in many industries, making it smaller companies to compete on a worldwide basis. New integrated information systems such as the SAP Enterprise Resource Planning (ERP) system have helped manage the entire supply chain. ERP systems include modules which are deployed throughout the business and interface with suppliers. Technology ha enabled the introduction of faster, more responsive and flexible ordering, manufacturing and distribution systems, which has diminished even further the need for warehouses to be located near to markets that they serve.

Technological Interface Management The challenges facing suppliers, intermediaries and customers in the supply chain will shift from a focus on physically distributing goods to a process of collection, collation, interpretation and dissemination of vast amounts of information. Enterprise resource planning systems are continuously being updated to support direct data interfaces with suppliers and customers, for example to support EDI. A more recent development is interfacing of ERP systems with B2B intermediary sites or exchanges such as commerce One. SAP has also created mySAP facility to help customers manage and personalize their interactions with these exchanges. XML is increasingly used as the technical means by which technological interface management is achieved.(The critical resources possessed by these new intermediaries will be information rather than inventory. This stage has been taken a bit further by suggesting that customer information capture will sere customers rather than vendors in future. Currently customers leave a trail of information behind them as they visit sires and make transactions. This data can be captured and then used xxi

by suppliers and agents to improve targeting offers. However, as customers become more aware of the value of information and as technology n the internet enables them to protect private information relating to site visits and transactions, then the opportunity grows for intermediaries to act as customer agents not supplier agents.

Practice by Renata Limited Renata Limited has got a Distribution Channel Management (DCM) that primarily works for the downstream supply chain that we can relate to Physical Distribution Management (PDM), the earliest phase of supply chain management. This is responding to the need of the market from the front end, the distribution channel, and back end, the procurement of raw materials. The Block list, total procurement needed for a year, is usually made at the beginning of a year with minor adjustment afterwards. This is determined by a forecasting based on previous years sale with adjustment for the micro factors, every single response from the field force who visit doctors and chemists. The technology used here are simple mail communication for the overall supply chain while keeping track of every movement of inbound and outbound logistics are kept in custom database. Since the procurement is designed for once in a year there are tenders to bid by the suppliers, the management is simple and largely done by the suppliers. For the local supplier the complication is less and supply can happen as per order at any time. On downstream supply chain the communication is web. Every performance on delivery of goods is communicated through web to update database. So present stock level, the delivered lot and present demand from the customer can be traced at every moment.

Supply Chain Models Two prominent models are very widely used. They are illustrated below

xxii

Push supply chain The push model is illustrated by a manufacturer who perhaps develops an innovative product and then identifies a suitable target market. A distribution channel is then created to push the product to the market. Push to Customer Supplier Manufacturer

Distributor

Retailer

Customer

Pull supply chain This model emphasizes on using the supply chain to deliver the value to customers who are actively involved in product and service specifications. Here the supply chain is constructed to deliver value to the customer by reducing costs and increasing service quality.

Supplier

Manufactur

Distributor

Retailer

Customer

Renata Limited is following the pull model of supply chain as they are demand oriented and this model has been the strategy for many organizations.

Setbacks in supply chain management

xxiii

The practice by Renata Limited for its supply chain, the Goods Distribution Process (GDP), has been suffering from many problems that a future participant in pharmaceuticals arena should have been eliminated. We can list the shortcomings as following. •

The system is comparable to the earliest model of supply chain management like Physical Distribution Management (PDM). Here the information management and coordination is least and it is integrated within the organization.

•

They need to maintain a safety level of inventory in front end for a period of 8 weeks and in the back end for a period of 8 weeks. This signals more investment done for the working capital.

•

Once a safety level of inventory is maintained, it cost more for storage and management. Just In Time (JIT) eliminated this problem that they are yet to introduce.

•

Their supply chain is dependent one some intermediaries in back end and their own multistage distribution channel in front end. So they aren’t able to order directly for inputs and supply directly to customers.

•

They haven’t yet employed any high performing supply chain management software like ERP system. They only rely on the database for the performance judgment and forecasting the future needs based on it.

•

The time lag in back is high as it needs several steps for ordering the new materials and coordination with different agencies.

Options for restructuring supply chain As part of strategy definition for e-business, managers will consider how the structure of the supply chain can be modified. These choices aren’t primarily based on internet technology choices, rather they are mainly choices that have existed for many years. What internet technology provides is a mire efficient and enabler and lower cost communications within the new structure. Supply chain management options can be viewed as a continuum between internal control of the supply chain elements and the external control of xxiv

supply chain elements through outsourcing. The two end elements of the continuum are usually referred to as ‘vertical integration’ and ‘virtual integration’.

Vertical integration refers the extent to which supply chain activities are undertaken and controlled within the organization. Virtual integration refers the majority of supply chain activities ate undertaken and controlled outside the organization by third parties.

Vertical Integration integration

Vertical

Virtual

Disintegration

Characteristics: • Majority of manufacture inhouse. • Distant relationship with suppliers.

Applications: • Specialized or proprietary production

xxv

Characteristics: • Move to outsourcing. • Network of suppliers.

Applications: • Cost reduction and focus on core capabilities.

Characteristics: • Total reliance on linked third parties. • Close relationships with Suppliers.

Applications: • Rapid market penetration

There was a general trend in during the second half of twentieth century from vertical integration through vertical disintegration to virtual integration.

A good example is provided by the car manufacturing industry where traditionally car plants would be located near to a steelworks so that the input to the car plant would be raw materials, with finished cars produced as the output. Other components of the car such as engine and passenger equipment would also be manufactured by the company. In addition other value chain activities such as marketing would also largely performed in house. There has been a gradual move to sourcing more and more components such as lights, upholstery ad trim and even engines to third parties. Marketing activities such as web site development, brochure fulfillment and advertising campaigns are now largely outsourced to marketing agencies. Another example is the purchase by pharmaceuticals companies of pharmacy benefit managers (companies that manage drug distribution with private and company health schemes). By acquiring these companies which are part of pharmaceuticals company’s downstream supply chain the aim is to ‘get closer to the customer’ while at the same time favorably controlling the distribution of the company’s own drugs. Hayes and Wheelwright provide a useful framework that summarizes choices for an organization’s vertical integration strategy. The three main decisions are:

xxvi

1.

The direction of any expansion: Should the company aim to direct ownership at the upstream or downstream supply chain? The pharmaceuticals companies referred to above have decided to buy into the downstream part of the supply network (downstream vertical integration). This is sometimes refereed to as an offensive strategic move since it enables the company to increase its power with respect to customers. Alternatively, if the pharmaceuticals company purchased other research labs this would be upstreamdirected vertical integration which is strategically defensive.

2.

The extent of vertical integration: How far should the company take downstream or upstream vertical integration? Originally car manufacturer had a high degree of vertical integration, but more recently they have moved from a wide process span to a narrow

process span. This change is the main way in which e-business can impact vertical integration by assisting the change from wide to narrow process span.

The balance among the vertically integrated stages: To what extent does each stage of the supply chain focus on supporting the immediate supply chain? For example, if a supplier to a motor manufacturer also produced components for other industries this would be an unbalances situation. Combining these concepts, we can refer to the B2B Company. If it owned the majority of the upstream and downstream elements of the supply chain and each element was focused on supporting the activities of the B2B Company, its strategy would be to follow upstream and downstream directions of vertical integration with a wide process span and a high degree of balance. Alternatively, if the strategy were to focus on core competencies it could be said to have a narrow process span. How, then, often can electronic communication support these strategies? Through increasing the flow of information between members of the supply chain, a strategy of narrower process span can be supported by ecommerce. However this relies on all members of the supply chain being eenabled. If only immediately upstream suppliers have adopted e-commerce then the efficiency of the supply chain as a whole will not be greatly increased. It may be difficult for a manufacturer to encourage companies further up the supply chain to adopt e-commerce. So companies undertaking offensive strategies will be in a better position to stipulate adoption of ecommerce, and so increase the overall efficiency of the supply chain. 3.

Following are two examples of the manufacture of personal computers also illustrate the concept of the two different supply chain products well.

Approach 1 (IBM Practice) Manufacture of many components by IBM plants in different locations including IBM processor, IBM hard disks, IBM cases a IBM monitors and even IBM mice. Distribution to companies by IBM logistics. Approach 2 (DELL Practice) Manufacture of all components by third parties in different locations including Intel processors, Seagate hard disks, Sony monitors and Microsoft xxvii

mice. Assembly of some components in final product by third parties, e.g. adding appropriate monitor to system unit for each order.

E-supply chain management E-business can be used to improve supply chain management in a number of ways. in that cases challenges were • • • • • •

Reduce order-to –delivery time. Reduce costs of manufacturing. Manage inventory more efficiently. Improve demand forecasting. Reduce time to introduce new products. Improve aftermarket/ post-sales operations.

The typical benefits that B2B companies have from e-SCM are as following 1.

Increased efficiency of individual processes: Here the cycles time to complete a process and the resources needed to execute it are reduced. If the B2B Company adopts e-procurement this will result in a faster cycle time and lower cost per order. Benefits: Reduced cycle time and cost per order.

2.

Reduced complexity of supply chain: This is the process of disintegration. Here B2B Company will offer the facility to sell direct from its e-commerce site rather than through distributors or retailers. Benefits: Reduced cost of channel distribution and sale.

3.

Improved data integration between elements of the supply chain: The B2B Company can share information with its suppliers on the demand for its products to optimize the supply process. Benefits: Reduced cost of paper processing.

4.

xxviii

Reduced cost through outsourcing: The company can outsource or use virtual integration to transfer assets and costs such as inventory holding costs to third companies. Technology is also enabler in forming value networks, and in making it faster to change suppliers on the basis of cost and quality.

Benefits: Lower costs through price competition and reduced spend on manufacturing capacity and holding capacity. Better service quality through contractual arrangement. 5.

Innovation: E-SCM should make it possible to be more flexible in delivering a more diverse range of products and to reduce time to market. For example, the B2B company may use e-commerce to enable its customers to specify the mixture of chemical compounds and additives used to formulate their plastics and refer to a history of previous formulations. Benefits: Better customer responsiveness.

Flexibility in adapting to a new business requirements is a key capability of e-SCM systems. For example, in 2006, e-business system supplier and integrator SAP explained the three key capabilities of its SCM solution as •

Synchronize supply to demand: Balance push and pull network planning processes. Replenish inventory and execute production based on actual demand.

•

Sense and respond with an adaptive supply chain network: Drive distribution, transportation, and logistics processes that are integrated with real-time planning processes.

•

Provide network wide visibility, collaboration, and analytics- Monitor and analyze your extended supply chain.

An alternative perspective on the benefits is to look at the benefits that technology can deliver to customers at the end of the supply chain. For the B2B company these could include: • • • • •

Increased convenience through 24 hours a day, 7 days a week, 365 days a year ordering. Increased choice of supplier leading to lower costs. Faster lead times and lower costs through reduced inventory holding. The facility to tailor product more readily. Increased information about products and transactions such as technical data sheets and order histories.

IS infrastructure for supply chain management

xxix

Information systems need to deliver supply chain visibility to different parties who need to access the supply chain information of an organization, whether they be employees within the organization, suppliers, logistics service providers or customers. Information systems have a key role in providing this visibility. Since a huge volume of information defines supply chain processes for each organization, users of this information need to be able to personalize their view of information according to their need- customers want to see the status of their order, suppliers want to access the organization’s database to know when their customer is next likely to place major order. Security is also important – of a company has differential pricing, it will not want customers to see price differences. FIG

These requirements for delivering supply chain information imply the need for an integrated supply chain database with different personalized views for different parties. A typical integrated information systems infrastructure for delivering supply chain management is illustrated in above figure. It can be

xxx

seen that applications can be divided into those for planning the chain and those to execute the supply chain process. A key feature of modern supply chain infrastructure is the use of a central operational database that enables information to be shared between supply chain process and applications. This operational database is usually part of an enterprise resources planning system such as SAP, Baan or Prism and is usually purchased with the applications for supply chain planning and execution. Some of the planning applications such as network simulation and optimization are more likely to be supplied by separate software suppliers. The use of internet technologies to deliver information over a TCP/IP protocol is becoming standard to reduce the costs of proprietary leased line networks. Information needed by managers to intervene in supply chain process when problems occur is delivered as alerts or through continuous monitoring across secure private intranets of extranets used to link to partners.

Practice around the world Today’s competitive business environment calls for companies to pay much more attention to how they manage their supply chains. Customers are insisting on greater value, faster order fulfillment and more responsive services when they make purchase. Shorter product life cycles, global sourcing and greater product variety have increased supply chain costs and complexity. The value of so many businesses are linked together that

xxxi

competitive advantage may be based on entire supply chains rather than individual firms.

Supply chain process: Many process and sub processes are involved in managing the supply chain to expedite flow of information and materials. The Supply Chain Council developed a Supply Chain Operations Reference Model which identifies five major supply chain processes: Plan, Sources, Make, Deliver and Return

Plan: consist of processes that balance aggregate demand and supply to develop a course of action to meet sourcing, production, and delivery requirements. Source: consist of processes that procure goods and services needed to create a specific product or service. Make: consists of processes that transform a product into a finished state to meet planned or actual demand. Deliver: consists of processes that provide finished goods and services to meet actual or planned demand, including order management, transportation management and distribution management. Return: consists of processes associated with returning products or receiving returned products, including post delivery customers support. Logistics plays an important role in these processes, dealing with the planning and control of all factors that will have an impact on transporting the correct product or service to where it is needed on time and at the least cost.

xxxii

Plan: Balance resources with requirement Align supply chain plan with business and financial plan

Sources: Identify suppliers Schedule deliveries Manage inventory

Make: Schedule production Evaluate quality & performance Manage work in process

Return: Automatic return Schedule return Receive return Issue return credit xxxiii

Deliver: Select carrier Route shipment Manage warehouse Invoice customers

Manager A

Manager B

Manager C

Aggregate + analyze Individual CSFs

Develop agreement on company CFSs

Define company CFSs

Define DSS and database

xxxiv

Use CFSs to develop information systems priorities

Manager C

Information and supply chain management Inefficiencies in supply chain such as parts shortages, underutilization of plant capacity, excessive finished goods inventory are caused by inaccurate or untimely information. These supply chain inefficiencies can waste as much as 25% of company’s operating costs. If a manufacturing had perfect information about exactly how many units of product customers wanted, when they could be produced, it would be possible to implement a highly efficient just-in-time strategy. In supply chain uncertainties arise because many events cannot be foreseenuncertain product demand, late shipments from suppliers, defective parts of raw material, or product process breakdowns. One recurring problem in supply chain management is the bullwhip effect, in which information about demand for a product gets distorted as it passes from one entity to the next across the supply chain. These changes ripple throughout the supply chain, magnifying what started out as a small change from planned orders, creating excess inventory, production, warehousing, and shipping costs. The bullwhip can be tamed by reducing uncertainties about demand and supply when all members of the supply chain have accurate and up-to-date information members of the supply chain could share dynamic information about inventory levels, schedules, forecasts and shipments, they would have a more precise idea of how to adjust their sourcing, manufacturing and distribution plans. Supply chain management system provides the kind of information that can help members of the supply chain make better purchasing and scheduling decisions.

Supply Chain Management Application The central objective of supply chain management systems is information visibility- open and rapid communication and information sharing between members of the supply chain. Supply chain management systems automate xxxv

the flow of information between a company and its supply chain partners so they can make better decisions to optimize their performance. The supply chain software can be classified as either software to help businesses plan their supply chains (supply chain planning) or software to help them execute the supply chain steps (supply chain execution). Supply chain planning system enables the firm to generate demand forecasts for a product and develop sourcing and manufacturing plans for that product. Such system help companies make better operating decisions such as determining how much of a specific product to manufacture in a given time period. Supply chain execution system manage the flow of products through distributing centers and warehouses to ensure that products are delivered to the right location in the most efficient manner.

Supply chain performance measurement Companies need to be able to measure the performance of their supply chain management efforts using objective performance information. A metric is a standard measurement of performance. Important metric for measuring supply chain performance include the fill rate, the average time from order to delivery, the number of days of supply in inventory, forecast accuracy, and the cycle time for sourcing and making a product. Supply chain management and the internet: In the pre-internet environment, supply chain coordination was hampered by difficulties of making information flow smoothly among disparate internal supply chain systems as well as external supply chain partners because the systems of suppliers, distributors or logistics providers were based on incompatible technology platforms and standards. Some supply chain integration can be supplied inexpensively using internet technology. Firms can use intranets to improve coordination among their internal supply chain processes, and they can use extranets to coordinate supply chain processes shared with their business partners.

Demand driven supply chain: from push manufacturing and efficient customer response

to

pull

Earlier supply chain management systems were driven by a push based model (also known as build-to-stock). In push based model, production master schedules are based on forecasts or best guesses of demand for products, and products are “pushed” to customers. With new flows of information made possible by web- based tools, supply chain management can more easily follow a pull based model. In a pull based model which is also known as demand-driven model or build- to- order, actual customer orders or purchases trigger events in the supply chain. Transactions to xxxvi

produce and deliver only what customers have ordered move up the supply chain from retailers to distributors to manufacturers and eventually to suppliers. Only products to fulfill these orders move back down the supply chain to the retailer. Manufacturers would use only actual order demand information to drive their production schedules and the procurement of components or raw materials.

Business value to supply chain management system Supply chain management systems enable firms to streamline both their internal and external supply chain processes and provide management with more accurate information about what to produce, store, and move. By implementing a networked and integrated supply chain management system, companies can match supply to demand, reduce inventory levels, improve delivery service, speed product time to market and use assets more effectively. Effective supply chain management system enhances organizational performance in the following areas: 1.

Improved customer service and responsiveness: make the products easily available to the customers. Having the right product at the right place at the right time will increase sales.

2.

Cost reduction: supply chain management helps companies contain, and often reduce some or all of the costs associated with moving a product through the supply chain.

3.

Cash utilization: the sooner a company delivers a product, the sooner that company will get paid.

Systems as planned organizational change Building a new information system is one kind of planned organizational introduction of a new information system involves much more than new hardware and software. It also includes changes in jobs, skills, management and organization. When we design an information system we are redesigning the organization. System builders must understand how a system will affect the organization as a whole.

Information system plan 1. Purpose of the plan Overview of the plan contents Current business organization and future organization

xxxvii

Key business processes Management strategy

2. Strategic business plan rationale Current situation Current business organization Changing environment Major goals of the business plan Firm’s strategic plan

3. Current system Major systems supporting business functions and process Current infrastructure capabilities Hardware Software Database Telecommunication and internet Difficulties meeting business requirement Anticipated future demands

4. New developments New system projects Project description Business rationale Application’ role in strategy New infrastructure capabilities required Hardware Software Database Telecommunication and internet

5. Management strategy Acquisition plans Milestones and timing Organizational realignment Internal reorganization Management controls Major training initiatives Personnel strategy

xxxviii

6. Implementation plan Anticipated difficulties in implementation Progress report3

7. Budget requirements Requirements Potential savings Financing Acquisition cycle This table is a summarize output of enterprise analysis which shows what information is required to support a particular process, which processes create the data, and which use them.

Strategic analysis or critical success factors The strategic analysis, or critical success factors, approaches argue that an organization’s information’s requirements are determined by a small number of critical success factors (CFSs) of managers. If these goals can be attained, success of the firm or organization is assured. CFSs are shaped by the industry, the firm, the manager, and the broader environment. New information system should focus on providing information that helps the firm meet these goals. Examples Profit concern

Goals Earnings / share Return on investment Market share New products Energy standards

Non-profit concern

Excellent health care Meeting government regulation Future health needs

CFSs Automotive industry Styling Quality dealer system Cost control

Regional integration with other hospitals Improved monitoring of regulations Efficient use of resources An example of critical success factors and organizational goals

The principal method use in CFS analysis is personal interviews- three or four with a number of top managers identifying their goals and the resulting xxxix

CFSs. These personal CFSs are aggregated to develop a picture of the firm’s CFSs. Then the systems are built to deliver information on these CFSs.

Practice by Renata Limited Distribution Channel Management Renata Limited has got a Distribution Channel Management (DCM) that primarily works for the downstream supply chain that we can relate to Physical Distribution Management (PDM), the earliest phase of supply chain management. This is responding to the need of the market from the front end, the distribution channel, and back end, the procurement of raw materials.

Distribution Planning The Block list, total procurement needed for a year, is usually made at the beginning of a year with minor adjustment afterwards. This is determined by a forecasting based on previous years sale with adjustment for the micro factors, every single response from the field force who visit doctors and chemists. After analyzing all the required micro and macro factors, and reviewing all those, generally a plan is given to the Distribution Chain Channel. Based on the condition of 15 sales outlet of Renata, and inventory kept in the central warehouse, the total planning is determined. After initiating the plan, goods are moved to the outlets for sale, from the central inventory warehouse.

Organization Service Department

xl

The Organization Service Department of Renata Ltd. includes Purchase Department and Distribution Department.

Purchase Management System The raw materials procurement system of Renata Ltd. is called Purchase Management System. From the beginning of coming raw materials, and to the reach of end customers, every thing is computerized.

Mail Communication The technology used here are simple mail communication for the overall supply chain while keeping track of every movement of inbound and outbound logistics are kept in custom database. Since the procurement is designed for once in a year there are tenders to bid by the suppliers, the management is simple and largely done by the suppliers. For the local supplier the complication is less and supply can happen as per order at any time. On downstream supply chain the communication is web. Every performance on delivery of goods is communicated through web to update database. So present stock level, the delivered lot and present demand from the customer can be traced at every moment.

Software used by Renata The software currently used in the organization is called “Bridging Technology”. That means, they are connected to the each of the department through their home made connecting technology. At this moment, they are not fully automated, but in near future, hopefully, they will be fully automated. In Renata, their Front End Distribution System is 100% computerized, and Back End Distribution System is 20% computerized. Renata Ltd. has Intranet facilities for the inter connection of total organization. For this, they use “World Client” software.

xli

For accounts purposes, Renata uses renowned software, which is called “Troyee”. Troyee is effective for accounts purpose because, it records all the entries in a structured format.

Renata Ltd: Goods Distribution Process

Here will be a Diagram

xlii

Demand Planning & Supply Planning

xliii

The concept Demand planners are kind of like weather forecasters -- they rarely get credit for doing their job correctly, and they're only noticed when they get it wrong. Nevertheless, it's vitally important that they get it right, or else severe -- and potentially disastrous -- supply chain glitches can occur. "The bullwhip effect is as true today as it ever was in modern, elongated global supply chains where small errors at the front are magnified throughout the process," observes Andrew Kinder, director of product marketing for supply chain management at Infor, an enterprise software provider. Kinder offers these 10 tips to gauge your company's demand planning preparedness, and help guide you to getting the forecasts right. 1.

2.

3.

4.

5.

xliv

Get the process right. Demand planning is a sub-process within sales and operations planning or integrated business planning, not a standalone activity. Create an integrated business plan that is a cross-company activity and drives the rest of the business forward for profitably meeting customer demand. Decide what levels you need to plan demand at that make sense for your business. Some companies analyze and plan demand at the product family level, customer level or geographic level. The way you forecast and plan demand is unique to your business. Don't be dictated by limitations of your IT technologies -- and be prepared to change how you plan demand according to changes in your business. Demand planning is a collaborative process, not a test of statistical algorithms. The statistics provide a solid foundation to work with, but the real value comes from over-laying knowledge that systems cannot possibly know. Deploy internal collaboration before external collaboration, recognizing that the closer you get to the true demand signal, the better the forecast will be. Demand planning is not just forecasting. Forecasting is a component of demand planning and relates to your best estimate of future demand. Companies that excel in this area will challenge the forecast (and the integrated business plan) and seek opportunities to influence demand through marketing events and promotions to bring the forecast more in line with the company plan. You can't control what you can't measure. Put the right set of linked key performance indicators in place and measure regularly against these.

6.

7.

8. 9.

10.

Educate before training. Because the demand planning process is cross-functional, many people input to the forecast without realizing the importance of their contributions. As a result, the quality of their contributions may suffer. A good educational program will help everyone understand their contribution and impact on the performance of the demand plan. Cleanse the data so you don't spend all your time questioning it and losing confidence in the process, which can create a breeding ground for others to second-guess the demand plan and produce their own version. Demand planning deals with huge quantities of data and robust processes are required to keep the data cleansed. Trust the numbers and manage by exception. 80% of your return can be achieved by reviewing 20% of the items. Use the error in your forecast to positive effect. A good statistical forecast will have an appropriate error which drives an appropriate safety stock target. This leads to good inventory management and delivers higher service with lower total inventory. Deploy a proven best-in-class solution. A recent Aberdeen study shows that companies that excel in demand management -- reporting higher forecast accuracies and lower inventories -- are two-and-a-half times as likely to have implemented a best-in-class demand planning system.

THE demand planning Since the supply chain management of Renata Limited is a pull model supply chain, they aim at their product quality. This is done at the commencement of every year and absorbs the amendment as needed throughout the year. They term it as block list based on which suppliers from in and outside of the country are ordered to provide raw materials on time. Following are the steps the tread when set the demand. •

Response from the field force: They have got an efficient field force that visits their customers, doctors and chemist, in particular make a demand plan that would survive for the coming period based on their findings.

•

Make regional demand schedule: As not every region of their market need the same product in same quantity, they make a regional demand schedule based on the data coming from the field force that indicate different trends for territory.

xlv

•

Adjustment with the forecasted trend: Once they got the regional demand schedule they adjust it with the forecasting based on the sales of previous years and quantity the total needs for that year.

•

Adjustment with the stock in hand: The finished goods in hand and the returned goods form the market is subtracted from the total demanded amount for that year. Company normally holds 8 weeks inventory level in end, front and back, of finished goods and raw materials.

•

Technology and time lag: The technology used here is intranet that helps every field force unit to update the present demand condition at the end of the day, every working day. Since the downstream supply chain is more updated and automated the time lag is least, 12 hours. This can be checked at any moment.

Field Force

District Sales Manager (DSM)

Regional Sales Manager

Sales Manager

National Sales Manager

The supply planning The supply planning starts when the demand schedule is finalized for the upcoming year. As supply comes from outside of the country, there are regulatory measurements to be followed. The total demand is placed in a block list that is presented to the related government agency for approval. So following are the steps, we can say, are treaded in supply planning.

•

Block list and approval: Once the demand schedule is ready, it is formatted into a block list and seeks the permission for import. This is done for supplies from outside. For inside oriented supply no such steps need to be maintained.

•

Tender float: According to the approved block list the company calls the eligible agents who can purchase the raw materials in favor of the company.

xlvi

There is a communication maintained between these agents and company to supply the materials on time. This is manual. •

Segregating into lots: Then suppliers are asked to supply the raw material needed in each month. The forecasted demand of each month is communicated to the suppliers and they perform their job.

•

Monthly production: According to the demand the company goes for monthly production target. This may vary as per demand.

•

Distribution: The Company has got 15 sales depots across the country which supplies the finished product to each district according to their monthly need. There is a central inventory that keeps connection with the depots and upcoming supply needs.

•

Technology used: The technology used here to keep connection with suppliers is mail communication. Since they maintain a safety stocks in both front and back end and production is segregated into months, this mail communication serves their purpose well.

Recommendation: In near future, they have the plan to use Planning Based Improvement process to strengthen their Information System & Supply Chain Management, as per their opinion. Nevertheless we can forward some recommendation based on our understanding of the current position of supply chain management and overall information system. They are •

xlvii

They need to acknowledge the pressure from the competitors and should understand the leaders of their sector that how they are managing the IS and Supply chain.

•

As long as the other related parties in their supply chain network are not concerned B2B e-commerce and as long as there are legacy system in the regulatory framework, a not integrated supply chain network isn’t possible. So there should be a pressure from the industry people to have it done.

•

In future business arena there should be an industrial practice of IS and Supply chain network so that downstream supply chain can be more extended and reaches to consumers.

Conclusion To conclude, we say it is very vital for a player in pharmaceuticals industry to concentrate on the Information System and Supply Chain Management. The value addition in each stage would be more precise and quantifiable once they started to use a sophisticated supply chain management. The investment in this task will surely give and it is much waited for those who are entering into the foreign territory.

xlviii