opsworld 2012

EXPERTOPINION

O P S W O R L D E X P E R T O P I N I O N

5

OPINION

Sustainable Operations: Key challenges and way forward

Today, the complexity of operations for most companies has increased to levels hitherto unseen. Massive globalization and the need to

respond to customer expectations in varied geographies means that companies have to cope with operational pressures on a 24X7 basis. This complexity has got further elevated because of turbulence in the global economy. More than 50 percent of executives consider sustainability—“very” or “extremely” important in a wide range of areas, including new-product development, reputation building, and overall corporate strategy, according to the latest McKinsey survey. Yet companies are not taking a proactive approach to managing sustainability: Only around 30 percent of executives say their companies actively seek opportunities to invest in sustainability or embed it in their business practices. Some of the key challenges that I see for sustainability of operations going forward are as follows. 1. High pressure on companies to manage their operations in an energy efficient and green way has become a huge game changer in recent times. Companies can no longer go for low cost option of generating wastes and disposing it. There is a need to migrate to a regime of waste generation prevention , which requires new capabilities in operations management 2. High Inflationary trends in the global and domestic economies means that companies need to be much smarter in their cost management. Volatility of prices of key commodities like Oil, Coal, Iron Ore , Zinc, etc coupled with currency fluctuations means that operations have to be managed in a different way going forward. 3. As capital expenses are being deferred because of huge increase in the cost of capital, there is very high pressure on existing assets to deliver operational performance. A trade-off has emerged between performance and health of key assets, which poses a huge operations risk 4. Working capital management is becoming difficult as cash to cash cycle time has increased and availability of credit is getting erratic. 5. Loss of critical skills because of cost pressures and competitive environment means that some key areas in operations are being managed through day to day firefighting, resulting in high operations risk. 6. Government policies in most developed and developing countries have imposed very stringent norms for Safety , Health and Environment , threatening companies with high risk if they do not shape upErnst & Young research shows that high performers

are more advanced in addressing these issues related to operations sustainability . Excellence in one or more dimension, complemented by competence and recognition of the connections between the others, lies at the heart of competitive success. Such companies have been more successful at identifying and responding to opportunities for maximizing their potential market ,either through entering new geographical markets or through product innovation- creating new ones. They have o p t i m i z e d their speed and flexibility to respond to these

opportunit ies . They have been building the right balance between price and cost to sustain growth. And they have been s e c u r i n g support that they need from their stakeholders to enable them to execute and achieve their goals. The pursuit of these goals is what lies behind the great increase that we are seeing in cross border activity, product and process innovation, and in rethinking m a n a g e m e n t ’ s approach to both attracting and developing talent.This means that, going forward, companies need to manage their operations in a significantly different way and build new capabilities to achieve sustainable operational performance. These capabilities need to go beyond the conventional efforts that companies have put in for achieving performance improvements. Here are 6 capabilities that are required for organizations to achieve sustainable operations 1. Ability to deliver technological innovations in process to improve product/material / component re-usability 2. Managing obsolescence of assets and planning replacements in time to avoid failure of operations in the future a. Build long term maintenance strategy b. Robust equipment replacement /refurbishment plan 3. Developing full life cycle view of operational carbon footprint and arrive at abatement levers a. Evaluate energy efficient platforms , for e.g. recovering process heat to generate steam to run a turbine to generate power, evaluating alternate fuels, etc b. Evaluate alternate fuels 4. Timely and effective management of capacity a. Achieve Full Technical Specification of installed capacity through operational effectiveness and efficiencies b. For incremental capacity , optimize capital expenditure(Capex) through smart Capex management 5. Effective procurement and supply management a. Alternate sourcing

Author Mr. Suvradipta Banerjee , Associate Director , Advisory Services , Ernst & Young

O P S W O R L DE X P E R T O P I N I O N

6

b. Supplier development c. Hedging against commodity and currency fluctuations d. Smart working capital management 6. Reduce operational risk due to human factors a. Automation b. Fail safe design c. IT enablementOrganisations need to pro-actively build these capabilities through a structured approach in order to sustain their operations on a continuous basis.

4 step approach for achieving sustainability in operations

An integrated approach is required to achieve sustainable operations. This approach looks at achieving operational sustainability through 4 key initiatives

1. Set performance aspirations for future. Aim at a horizon of 8-10 years • Cascade down to key operational capability expectations • Identify operations sustainability themes • Define organization and governance for achieving these themes • Set sustainability performance standards and mechanism to review and manage • Leadership to role model expected behavior and capabilities in areas identified • Plan investments for building operational sustainability • Effective communication by leadership on sustainability to employees and stakeholders. 2. Develop operations sustainability blueprint based on the identified themes. The blueprint needs to clear define the architecture for keys sustainability themes such as . This needs adaption of new toolkits and technologies to prepare for operational expectations in the future state. • Energy efficiency and effectiveness of operations • High reliability of operations • Innovations in product / process /material usage to reduce wastes and increase material re-use • Effective management of capacities – both for existing assets , brownfield and greenfield expansions • Effective use of Information Technology and Automation. • Effective procurement and supply management 3. Develop new skills required to manage the transition from current state to future state • New analytical tools and sustainability methodologies • Continuous training of people (cross section of employees) as per skill gap identified to meet aspirations. 4. Effective codification and knowledge management • Standardisation of templates , tools, methodologies • Modular training content • Process Reference Guides • Interactive and efficient knowledge retrieval

Conclusion:Organisations will face severe operations sustainability pressures as a result of huge complexity introduced into the global and local operating environment. The learnings from the past few years has indicated the challenges confronting organizations in the next 10 years.

Organisations need to focus on the following 4 key areas in order to achieve sustainable operations . 1. Setting performance aspirations for future. Aim at a horizon of 8-10 years 2. Developing operations sustainability blueprint based on the identified themes 3. Developing new skills required to manage the transition from current state to future state 4. Effective codification and knowledge management

References: 1. How companies manage sustainability: McKinsey Global Survey results , Mckinsey Quarterly , March 2010 2. Growing beyond cost competiveness, from complexity to confidence , Ernst & Young , October 2011

______________________________________

GUESTARTICLE

O P S W O R L DG U E S T A R T I C L E

8

When Flipkart had started out in 2007, the e-commerce landscape in the country was not very well-developed.

Towards the earlier half of the decade, several online companies suffered from the lack of proper logistics and infrastructure, and several of those problems still remained.

The premise of Flipkart, from day one, was built on customer delight. Our aim was to satisfy the customer at every point of interaction with the company. We attempted to do this through some key services - an extensive inventory that offered them almost every title (since we started with books) they could think of, and a speedy and timely delivery system.

However, the biggest roadblocks we faced in the early days were in the areas of distribution and supply-chain. Neither of these was well-established in India – and in fact are still a major area of concern as far as e-commerce is concerned.

We rapidly realized that scaling up the back-end and making it efficient was going to be integral to our success. Customers were becoming much more discerning. While earlier they were satisfied just to get the product that they had paid for, now they expected a high quality of service in everything – from choice and discounts, to product quality, flexible payment options, speed of delivery and even post- delivery servicing.

Though initially we did not have much of a budget, once we started getting funds, one of the first things we invested in was our supply-chain network. Needless to say, that investment paid off.

One of our biggest investments and successes as far as the supply-chain is concerned, is the launch of our own delivery system in order to ease the bottle-necks in last mile delivery. Initially we were entirely dependent on third-party courier services to deliver our products.However, there were a number of problems we

Our Supply-Chain Process

faced with this system. Timely delivery was becoming an issue. The cash-on-delivery model did not work well since these companies were trained to deliver , and not collect cash or engage in reverse pick-up. The only way to tackle all these problems was to deliver our own packages.Flipkart Logistics now operates in 27 cities and is set to scale up in the next year. With this, our order-to-delivery time line has reduced drastically , leading to an increase in the number of satisfied customers.

In order to meet the increasing demand, and ensure that our customers have access to the widest variety and best discounts, we have always tried to maintain an extensive distributor network, which has rapidly grown over the years. Today we work with over 1500 suppliers across the country and stock a large inventory of products.

Flipkart initially started off with a consignment model – where we procured books on demand and delivered it to the customer. However, the high rate of dependency on suppliers and the additional time taken to procure the orders were also affecting our efficiency.

Hence we decided to invest extensively in warehouses as well. Larger warehouses meant larger inventory – which in turn led to faster order -to-delivery turnaround

time and happier customers. Today we have warehouses in 7

cities and delivery hubs in 50 cities.

This has gone a long way in removing inventory mismatch (where a supplier tells us that the item is in stock with them but is unable to supply the same when the orders come in). Almost 80% of our orders are delivered through warehouses and our customer complaint rate is also much lower compared to consignment orders.

We also believe in a very high-level of automation. Starting from the website interface, to the warehouse and logistics aspects of the business – we think high-end technology is what helps create a superior user experience.

Some of our other investments and innovations were geared towards creating a superior user experience in other areas of the order-to-post-delivery service chain. Our recent 30 day replacement policy has also been an important area of investment. Now, we replace a faulty / damaged product with a brand new one if we receive a complaint within 30 days of delivery. We take care of all reverse pick-ups and replacements with suppliers / merchants. One of the biggest concerns consumers have about online shopping, is the safety of their credit card details online. For those ready to make online purchases, frequent payment

“...One of our biggest investments – and successes – as far as the

supply-chain is concerned is the launch of our own delivery system in order to ease the bottle-

necks in last mile delivery...”

Author Mr. Sachin Bansal Co-founder and CEO, Flipkart.com

O P S W O R L D G U E S T A R T I C L E

9

gateway failures are another barrier. We decided to address all these problems by introducing our cash-on-delivery model. We started with a small pilot in Bangalore and once that took off, we took the service to a number of other cities. In certain areas, we have even started a card-on-delivery service. With this, the consumer does not need to worry about having adequate cash or change with them – they can swipe their cards then and there, and pay for their purchases. We have also launched a wallet system a few days ago. The Flipkart.com wallet has been launched keeping in mind the ease and convenience of our heavy users - those who shop with us multiple times during the month, and particularly when individual transactions have small ticket-size (i.e., micro payments). Wallet offers our customers the convenience of making payment once and shopping multiple times with us. This also ensures that customers do not have to go through the bank verification processes every time they buy something on Flipkart.com. The wallet cuts down on payment gateway issues as well.Our aim is to reduce the time spent on the order process as much as possible – thus making online shopping a simpler, faster and completely hassle-free experience for our customers.As far as future is concerned, we will be looking at bigger investments in our supply chain and technology. This should result in a more extensive network of warehouses and increased automation of our processes. We believe a higher level of independence will improve our services – further leading to greater sales and a greater customer conversion. Today, with our customer base growing by 30% month on month, the importance of a robust and extensive supply-chain network, better logistics etc. have become even more paramount. What other companies and entrepreneurs looking to enter this space should remember is that the challenges posed by the market in India are unique - from supply-chain and logistics to warehousing and payments. Any company which is starting operations in this country will have to invest time and resources to overcome similar problems. It is important for large players to build their own infrastructure if they want to succeed in this space.

_________________________________________

Across Clues 2. This is something customers will buy at a price they are willing to pay. 3. Should indicate how the operations objectives will be achieved. 6. This strategy defines what business the company is pur-suing 8. This is what customer attributes represents of the cus-tomer 9. This strategy indicates that the product should have a technical advantage. 10. What competence must have a market and customer?

Down Clues 1. This is one of the common objectives of operations. 3. Concerned with designing the physical new product (2 words). 4. is one of the elements of operations strategy model. 5. Is responsible for supplying the product or service of the company. 7. Is responsible for ordering and receipt of goods.

(Answers on Page no. 21)

CROSSWORD

SUSTAINABILITYFACULTY OPINION

O P S W O R L D S U S T A I N A B I L I T Y F A C U L T Y O P I N I O N

11

Jack of All Trades, Master of… Two

AbstractCompanies attempting the ultimate state of excellence do find very less scope of further improvement at the peak of the pyramid. In fact, improvement at this stage is very difficult as the organizations have tried every possible way to improve. While most of the organizations are adopting developed technology and advanced managerial skill at individual department level, they wittingly or unwittingly ignore the impact of interfaces and co-ordination between these disciplines. This missing link of proper co-ordination between various disciplines,eventually carves the scope of further improvements. This task is not easy, as the managers involved in making the decisions need to understand the pros, cons and business tricks of various departments. For an individual to acquire such knowledge and enable implementation across disciplines is very demanding and challenging. This article attempts to provide a way out. The seemingly complex problem can be simplified with involvement of a chain (group) of managers: each expert in at least two domains. This suggests managers have basic knowledge of all the organizational functions and possess expertise in at least two streams. Here we discuss some of the problems and their possible solutions as a result of an interface of other streams with ‘Operations’ management.

With globalization and increased competition, companies need to carve

new avenues and opportunities for business growth. This is not sufficient as the c o m p a n i e s have to ensure s u s t e n a n c e of existing b u s i n e s s , along with its growth. It has been observed that over a period of time, the companies develop a unique feature or culture which becomes an order winning strategy for sustenance and growth. For instance, ‘Toyota production system’ is a well known approach adopted by Toyotas, implementation of Six Sigma has made GE popular. In India, TVS group is known for its initiative in Total Quality Management. One can cite many such examples of companies that have exploited the market opportunities and earned a leading position. Many a times, innovative strategies are essential to maintain the earned position. Leveraging domain specific strength will certainly give a competitive advantage. It will be more beneficial if the companies develop inter-functional competencies, and understand the business tricks across various disciplines. The development of inter-functional competencies posses many challenges as it require various skill sets, sometimes contradicting, and at times complementing each other. However, the complex challenge can be simplified by developing a chain (group) of expertise; each individual, expert in two areas. In this article we discuss some common issues that can be handled in a better way if one possess expertise in two domain areas; one out of two being operations management.

In the following sections we explore through some challenges and/or opportunities across various disciplines.

Operations and Marketing Interface Advertising has a very special place among the many different facets of marketing management. In fact, many people still believe that marketing is just a synonym for advertising. A manager in advertising has to take very important decisions on a daily basis. Some of

these are ‘which advertisement should be used now?’, ‘what

should be the frequency of appearance of the advertisement?’, ‘what is the best mode for advertising?’, ‘what

should be highlighted in the advertisement?’

etc. Though at first glance, these questions do not seem to do much with operations, however,

the decisions will be easy if the manager takes into account the status of the inventories of the various products. The decision will be more appropriate if the manager is also aware of or understands, the details of the supply chain network and the basic processes involved in the manufacturing of the products. This will certainly give a complete picture regarding what to emphasize upon, and the appropriate time to advertise.Retail is also considered to be one of the most important aspects of marketing management. The goods in retail are meant to be sold in small lots, and are also meant for direct use or consumption. Retailers purchase goods from manufacturers, importers or wholesalers in bulk quantities, and then sell them to the end-users, which may be individuals or businesses. Retail distribution governs the last mile connectivity of the supply chain, and hence is a vital part of the distribution channel for the marketers. Retail sector has grown at an astonishing rate in the recent years; the skill sets essential for supply chain will be handy in managing the retail chains. Understanding demand is also an essential in retail. Forecasting methods like moving average, regression analysis, Holt-Winter approach, Box Jenkins technique will be of use here. Some other techniques that will enable retail management in a better way are the queuing theory and layout planning.Another major aspect of marketing that we can focus upon (in the context of this article) is sales.

Author Prof. Omkarprasad S Vaidya Operations Management and Quantitative Techniques Group, Indian Institute of Management Raipur

O P S W O R L DS U S T A I N A B I L I T Y F A C U L T Y O P I N I O N

12

Though sales can be simply defined as selling of a product or service, the people working in this department should understand the supply chain network of the organization, and the basics of supply chain for having a better insight into the delivery conditions and the lead time required for any given order. Supply chain network is the collection of physical locations, transportation vehicles and supporting systems through which the products and services are managed and ultimately delivered. The physical locations can be manufacturing plants, storage warehouses, distribution centers, ports, suppliers, transport carriers, third-party logistics provider and retail store.

Operations and Finance Interface Activity based costing (ABC) is one of the most popular tools to measure and improve upon the cost associated with a manufacturing, business or administration process, or any service. It is basically finance and accounting concepts used predominantly for supporting strategic decisions such as pricing, outsourcing, identification and measurement of process improvement initiatives. ABC determines all the resources and processes that act as the inputs to create a particular product or service. Then, it evaluates the costs associated with each of them, including the time taken. Thus it is able to zero-in on the “cost drivers” for each resource and evaluate the overall coat of the product or service. Briefly ABC helps in make the following decisions: • Identify, and if required, eliminate the unprofitable products, processes and services, and reduce the costs of those which are overpriced. • Identify, and if required, eliminate the products and processes which pay little role in the final output, or have better alternatives for.Though ABC is a tool mainly associated with finance and accounting stream of management, to use it effectively, one must also understand the aspects of operations management involved in it. ABC segregates the overall costs into fixed costs, variable costs and overhead costs. This split helps in identifying the cost drivers. But then, one needs a good knowledge base in operations management to do such classifications effectively.The optimization skills that very commonly used in making decisions in operations can be of vital importance in many finance related areas. Most of these tools are statistical or probabilistic in nature. They are used extensively in portfolio selection, derivatives management, risk management, financial products valuation and pricing policies. The optimization tools and models have been used in manufacturing since a very long time and thus were developed, initially, specifically for them. Another application of forecasting techniques is predicting the share prices in stock market.

Operations and HRM InterfaceOperations management and Human Resources Management (HRM) have always been considered as very distinct fields. They have been developed separately with little or no interaction except administrative issues. A closer look however suggests something else. Researchers (Boudreau et.al, 2002) claim that these two disciplines are intimately related at a fundamental level. Many effects of human resource activities like pay, training, communications, and staffing can be better explained or moderated by using operations tools One can also note various real-life events to illustrate how the application of the two concepts together have been quite successful at resolving issues which could not be tackled using one of them alone. Briefly, models in operations management area could provide insight into the search for “pivot points” that may be affected by talent. HRM could offer insights about factors that affect development of the appropriate talent and the extent to which satisfaction among workers affects retention and performance. But by truly bringing the two perspectives together, we can design hybrid systems that combine the motivational benefits of team-build with the efficiency of progressive-build. Thus it can be safely concluded that operations and HR managers, if work in synchronization, can accomplish a lot and resolve many serious problems. On the other hand, if a human resources manager has a sound knowledge of operations management, he/she alone can make real differences in a similar fashion.

Operations and IT InterfaceOperations management has been around for a long time now, at least

much before anyone even anticipated anything even close

to Information Technology (IT). Today, IT has become very prominent in not only the industry and economy, but even the life of almost anybody. Moreover, IT has found applications in every length and breadth of the industry, be it any of the management streams or any field of business. One very simple example could be the popular software used in almost every organization for manufacturing resource planning and enterprise resource planning. These systems come in handy especially in case a large number of parts are involved in material resource planning.On the other hand, though not as evident as the previous case, operations management has a lot of potential application(s) in IT. One of the very obvious ones is the application of process improvement methodologies like the Theory of Constraints (TOC). TOC is a very versatile tool and is used in many distinct fields with the same purpose- to make the process or system more goal (or profit) oriented by identifying and eliminating constraints in a systematic manner. For instance, Coman and Ronen (1995) explain and illustrate using a case study how the principles of TOC can be applied in IT. This work states some breakthrough statistics like around 15% of all projects in IT industry never deliver anything and overruns of 100-200% are very common.

“...though ABC is a tool mainly associated with finance and accounting stream of management, to use

it effectively, one must also understand the aspects of operations management involved in it...”


13

This analysis appears to be based on the gap between the optimal and existing situations. These figures can be improved upon, to a large extent by using TOC. The publication concludes that coupled with some other tools, TOC can be mobilized to examine potential future constraints, and not only the present constraints. It also suggests exploitation of competitors’ constraints to establish barriers for entry in the market, and offers a hierarchy of constraints across various levels of the organization.Thus operations management and IT have a lot to do with each other, and a manager in IT having a sound background of operations certainly will have an edge over his/her peers devoid of this knowledge.

Operations and Economics InterfaceEconomics is somewhat more related to operations. One of the well-known phenomena that display this link is the Bullwhip Effect. Briefly stating, it refers to the amplification in the variations in stocks as one moves up in the supply chain or away from the consumers. Though the main reasons behind Bullwhip Effect are behavioral (eg. panic ordering reactions after unmet demand) or operational (eg. forecast errors, lead time variability, etc.) in nature, its effects are easily observed as variations and fluctuations in supply and demand curves- a feature largely attributed to economics.Besides, several research publications have concluded that operations and economics have a lot to do with each other. Powell and Schmenner (2002) present a detailed analysis of the complex link between throughput time, price, and profit maximization. From this analysis, economists can gain a working example of how to open the ‘black box’ of production in terms of theoretical analysis and better specify labor’s role in the production process. ConclusionsIn this article, an attempt is made to explain that no field in management is isolated from the others. Emphasis is given to explain briefly the interface of operations and other major disciplines: marketing, finance, HR, IT and economics. A careful and detailed study will enable the managers carve scope for further improvements and attain the desired goal. It is also essential that leading B Schools take an initiative and guide the students (tomorrow’s mangers) towards developing and understanding the skills across various disciplines, rather than providing focused guidance in one specialized area. It is hoped that the student community will get a brief idea of the cross disciplinary opportunities, and help in choosing an appropriate career. The executive officers on the other hand can introspect their strengths and weakness, and work accordingly. With a chain (group) of connoisseurs, having basic knowledge of all disciplines (Jack of all trades) and an expertise in various interdisciplinary areas (master of two), the companies will certainly achieve better heights.

Acknowledgement: The author acknowledges the help and support from Mr. Akshay Agarwal and Mr. Rohit Bhagat, students at IIM Raipur.

Further reading (Print):• Boudreau, J., Hopp, W., McClain, J. O. & Thomas, L. J. (2002), On the interface between operations and human resources management (CAHRS Working Paper #02-22). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies. http://digitalcommons.ilr.cornell.edu/cahrswp/63 • Coman A. and Ronen B., (1995), Information Technology in Operations Management: a Theory-of-Constraints Approach, International Journal of Production Research, 33 (5), 1403- 1415• Philip T. Powell and Roger W. Schmenner, (2002), Economics and Operations Management: Towards a Theory of Endogenous Production Speed, Managerial and Decision Economics, 23(6), 331–342• Rajiv D. Banker, Inder S. Khosla (1995), Economics of operations management: A research perspective, Journal of Operations Management, 12, 423-435

• Tang, Christopher S., A Review of Marketing-Operations Interface Models: From Co-Existence to Coordination and

Collaboration (October 26, 2009). Available at SSRN:

http://ssrn.com/abstract=1568947• Vandaele, N. and Perdu, L. (2010), The operations-finance interface: An example from lot sizing, Proceeding of 7th International Conference on Service Systems and Service Management, Japan, 1-6 Further reading (Internet) as accessed on 30 October 2011:• h t t p : / / w w w. q f i n a n c e . c o m / c a s h - f l o w -management-calculations/activity-based-costing• http://www.artelys.com/gb/services/finance.html• http://faculty.haas.berkeley.edu/hoteck/PAPERS/Special%20Issue.pdf• http://www.boozallen.com/media/file/110165.pdf____________________________________

“...it is also essential that leading B Schools take an initiative and guide the students (tomorrow’s

mangers) towards developing and understanding the skills across various disciplines rather than providing

focused guidance in one specialized area...”


14

Cold Chain Management: A Conceptual Design for Sustainable Performance Improvement

AbstractThe supply chain of perishables, of-ten referred to as a “Cold Chain”, can be considered to be a series of equip-ments and processes used to protect perishables, starting from source until consumption. As all perishables fall in ‘fragile’ category and have limited lives, their handling is far more complex and prone to much higher risks compared to handling of non-perishable prod-ucts. And, with perishable food prod-ucts forming one of the fastest grow-ing items of Indian grocery sector, cold chain management is assuming greater importance and drawing the atten-tion of practitioners and researchers. This study is an attempt to identify the driving Performance Attributes and Decision Factors to evaluate cold chain performance and then imple-ment continuous improvement that could help an organization to sustain in today’s fast changing milieu. Man-agers can identify better processes and can benchmark them for improving the identified weaknesses. They can further analyze the effectiveness of the potential improvement opportunities as per the current operational condi-tions and strategies of their company.

Prelude

Given that most food, pharmaceutical, and chemical products get

degraded by inappropriate exposure to temperature, humidity, light and certain contaminants (Smith, 2005); a consistent management of controlled environment all along the supply chain is a key in maintaining the quality of perishable products till the final delivery point. A ‘Cold Chain’ is a physical process that dominates the supply chain of perishable products. It includes a series of equipment and processes used to protect the perishables, by keeping them chilled and frozen, starting from the source of origin to the destination of consumption (Salin and Nayga, 2003). The perishable products can be categorized into two types viz., living products and non-living products. The living Products include fruits, vegetables, live seafood, flowers etc., where respiration is an on-going process, which uses up stored energy or food reserves by emitting heat and water vapors. Here, temperature is an imperative constraint, and the impact of non-optimal temperatures results in the loss of quality in form of earlier ageing and natural senescence. Too high temperature results in loss of quality, rapid deterioration and microbial spoilage whereas, too low temperature causes remove,

chilling injury, freezing destructions and death (Ames, 2006). The non-living products include meat, dairy products, processed food products, medicines, blood, frozen products, etc. Similarly, if these products were not kept in a controlled or an optimum temperature, a microbial spoilage loss of quality in the form of flavor and texture degradation would be perceptible (Sowinski, 1999).The cold chain starts at farm level (harvest methods, pre-cooling) and continues during first handling, processing, distribution and finally covers up to the consumer level (cooling practices and behavior) as shown in Figure 1. It is the continuous degradation in quality and value of the product from source to destination, which differentiates the cold chain from the supply chain of non-perishable items.Management of a controlled environment during the cold chain is a key to keep perishable products at the required level of quality and quantity at the final delivery. Bogataj et al. (2005) have stated the formal definition of global Cold Chain Management (CCM) as, “the process of planning, implementing and controlling efficient, effective flow and storage of perishable goods, related services and information from one or more points of origin to the points of production, distribution and consumptions in order to meet customer requirements’.A temperature disturbance occurs when perishables are allowed to warm up or when the surrounding temperature fluctuates.

Author Dr. Rohit JoshiAssistant Professor, IIM Shillong


15

To maintain the temperature in the entire route from producers/manufacturers to consumer end, specialized facilities and technologies are essential to constitute a robust cold chain. The major issues involved with the implementation of a cost-effective and efficient CCM are: (i) pre-cooling facilities at farm, (ii) awareness among farmers regarding cold chain practices (iii) cold storages facilities (iv) refrigerated logistics, (v) packaging, (vi) product tracking and tracing, (vii) information technology enabled network (viii) inventory control, (ix) dynamic pricing (x) quality and safety throughout the chain, (xi) retailer’s practices, (xii) consumers’ knowledge and awareness, (xiii) government support, (xiv) laws and regulations, (xv) cold chain performance measurement etc. In this study, the concentration is on performance management of cold chain that includes all the links from a farmer to a consumer. Here, an attempt has been made to identify the Performance Attributes and Decision Factors that assists in evaluating cold chain performance, and then to implement the continuous improvement and to develop a novel Consistent Measurement Scale (CMS). The identification of Performance Attributes and Decision Factors, and the development of CMS are based on actual scenarios of the cold chain in Indian market.

Cold Chain Performance ManagementIn today’s competitive milieu, the quality of perishable products could be one of the main drivers for retailers to attract additional customers and thus increase profitability. Thron et al. (2007) stated that the quality of perishable goods assortment is becoming the core reason many customers choose one retailer over another. The global market for perishable goods such as cooled products and processed foods is growing due to changing lifestyles and overall declining prices. Any variation in time/distance or temperature in the cold chain could hamper the net present value of the activities, and thus adversely affect the overall performance (Bogataj et al., 2005).The cold chain management is not easy even when operating in a developed economy such as the US and UK. It gets even more challenging in developing economy like India. In most developed economies, with affirm support from robust infrastructure, there are limited uncertainties in business process related to logistics. However, in developing economies logistics tends to poses several types of challenges due to unpredictable environment, weaker infrastructure and uncertainty in availability of basic necessities like water, power etc (Joshi et al. 2009). For example, in India it is estimated that around 35% to 40% of the total production of fresh fruits and vegetables, is wasted only because of inadequate and inefficient cold storage, poor logistics and lack of other infrastructure supports (Viswanadham, 2006). At the current level of production, which makes India the second largest producer of fruits and vegetables in the world, the wastage of farm produce is valued at Rs. 70,000 million ($1400m), which is almost equivalent to the total production of Great

Britain (Khan, 2005). At a time when cold chain is a key domain for the food sector, an effective development of the cold chain is becoming an important issue. The high margin of product losses offers a significant opportunity for improvements, and advocates for technology and research advancement within this domain.In the business of perishable products, there is a direct correlation between the cold chain performance (CCP) and the quality of the end deliverable. For a considerable period of time, the cold chain data has been underutilized and used solely for the purposes of evaluating the integrity of individual shipments, i.e. facilitating the accept or reject decisions. This data could be gathered to measure performance of the cold chain, which in turn could identify flaws and weaknesses in the processes for eliminating problems before they occur. A well defined performance measurement system (PMS) aims at supporting the setting of objectives, evaluating performance and determining future courses of action on a strategic, tactical and operational level (Gunasekaran et al. 2001). PMS allows comparison of planned and actual parameter values, and taking certain reactive measures in order to improve performance or re-align the monitored value to the defined value (Beamon, 1999). However, measuring the performance of a cold chain is difficult as it has certain characteristics that set it apart from other types of supply chains, namely:• shelf life constraints, • seasonality in production, • physical product features like appearance, taste, odour,

colour, size and image,• long production throughput time,

• refrigerated transportation and storage requirement,• traceability,• product quality and safety. (Aramyan et al., 2007; Mangina and Vlachos, 2005) The framework for consistent measurement scale (CMS) of cold chain attributesThere are a number of attributes of a cold chain PMS. In this study, these attributes have been identified based on an exhaustive literature review and discussions with academics and industry practitioners. In the initial phase, a visit to the selected organizations was undertaken to understand their use of cold chain operations. Literature related to cold chain performance was then circulated among the experts. Within a period of fifteen days, a brainstorming session was organized to identify the performance attributes. In all, thirty-six attributes were identified during this session. Based on a continued analysis, the number was then systematically reduced to twenty-seven, as some were overlapped and some were combined. These attributes were further grouped into seven major categories and a cause-and-effect diagram was created (Figure 2). Once the attributes were finalized, a consistent measurement scale (CMS) was developed to rate different attributes on a consistent scale for evaluating performance more consistently. Thus evaluators can judge the performance of the attributes in a better way, as data collection is relatively easy and accessible due to this quantification.

“...the quality of perishable products could be one of the main drivers for retailers to attract additional customers and thus increase profitability....”


16

Based on the CMS, managers could quantify the performance of each cold chain attribute, as well as the overall cold chain performance of the company. Further they can compare and evaluate these values against the competitors’ to examine their company’s competitive gains and losses, and to understand the weaknesses in their cold chain processes. Managers could then identify better processes which could be benchmarked for improving the known weaknesses. After short listing the potential improvement alternatives, the next step would be to assess if those are suitable for implementation as per the operational conditions of the company. After discussions with experts, the consensus was arrived upon to conclude with eight decision factors, based on which the efficiency and effectiveness of potential alternatives could be judged. These decision factors are discussed later in detail.

Before something can be measured, it must be defined. The definitions of the attributes and how an attribute affects a company are explained in Table 1. This understanding could be significant for obtaining relevant information during evaluation, and for evaluating the relationship between attributes. Different levels of ratings are established depending on the type of sub-attributes. In order to evaluate performance more consistently, consistent measurement scale (CMS) for each sub-attribute are shown on Table 2 (last column).

Table 1: Definition of Attributes and Sub attributes for performance evaluationAttributes & definition

Attributes affect on a company

Sub attributes Definition of Sub-attributes

Cost: Running expenditure on whole cold chain operations of an organization.

Microbial spoilage in the food industry represents a huge cost and waste of a valu-able resource. Lower product losses, energy costs, cost of opera-tion and maintenance of refrigeration system and lost time costs can enhance the competitiveness.

Operation Cost Includes costs of refrigeration including internal or external service, maintenance costs, lost time costs, salary of dedicated employee and energy costs

Inventory Cost Includes storage cost and carrying costDistribution cost Cost associated with delivery activities like refriger-

ated transportation and handlingCost of Expired/ wasted product

Includes cost of product losses, which perish due to overage or mishandling

Cost of staff training Amount spent on training of staff for attaining required skills and knowledge


17

Attributes & definition Attributes affect on a company Sub attributes Definition of Sub-attributes

Quality & Safety: The degree of customer satisfaction with a product's characteristics (safety and hygiene) and features (freshness and juiciness) are the measure of quality.

Consumers are increasingly con-cerned with food quality and safety, and give freshness very high priority while purchasing chilled and frozen foods.

Certification Includes costs of refrigeration includ-ing internal or external service, main-tenance costs, lost time costs, salary of dedicated employee and energy costs

Customer satisfaction for Q&S

Includes storage cost and carrying cost

Categorization as per remaining shelf life

Cost associated with delivery activities like refrigerated transportation and handling

Traceability: The ability to trace product information regarding transaction (order, shipment, payment), location (ware-house, traffic, inventory), condition (temperature, humidity) and time (self life) through all stages of production, processing and distribution.

Product temperature may vary in each step, especially when loading and unloading is performed outside controlled temperature conditions and so traceability is today a key concept. Traceability can help in identifying flaws and weaknesses in the processes and eliminating problems before they occur.

At farmer’s place No. of points of monitoring (condi-tion) at farmers’ level

During transit No. of points of monitoring (condi-tion) during transit

At retail store No. of points of monitoring (condi-tion) at retail store

The degree of details of information about items monitored

No. of information secured about the product while monitoring

The degree of automation The degree of automation (Manual, semi automatic, automatic) of item identification and data collection process.

Service level: An ability of organization to supply their customers’ wants and needs.

A good service always delights customer. For a cold chain it can be viewed as a feature distinguished from other competitors and can in-crease sales and image e.g. refriger-ated home delivery, operating hours and convenience etc.

No. of Billing stations Number of billing counters /square meter

Convenience Ease of reach by customers

Operating hour No. of hours for which store is open for customer

Payment method No. of modes of payments

Delivery coverage Refrigerated home delivery area covered

Product availability Presence of large assortment and no stock out

Return on assets (ROA): Ability of organiza-tion to generate production and make profit utilizing its existing assets.

Efficiency in utilizing refrigeration assets can enhance productivity at a low cost without hampering the quality.

product of operation margin

Net profit to sales

Total asset utilization Sales/ Total assets

Innovativeness: Any creative idea, getting implemented or realized successfully as an individual or a part of the existing operation with the purpose of improving the current performance level.

Innovativeness is the only answer to continuously changing customer requirement and highly intense competition.

New launch of technology Percentage of reduction in time or cost by new technology to earlier ones.

New launch of service Percentage of increase in sale by new service / total sale

New marketing event Percentage of increase in sale by new event / total sale

Relationship: A logical association between customer, employees and partners.

A satisfaction level of customer, employees and farmers has direct impact on organisation’s perfor-mance.

Customer Average satisfaction of selected customer

Farmer (training, interac-tions)

Average satisfaction of selected farmer/ supplier

Employee (training for req. knowledge)

A measure of job satisfaction of an employee


18

Attributes Sub-attributes Rating Evaluation Standard

Cost Operation Cost VH [a] (Corresponding cost/ total cost) x 100 >50% Inventory Cost H 35%-50% Distribution cost A 20%-34% Cost of Expired/ wasted

product L 10%-19%

Cost of staff training VL <10% Quality & Safety Certification VH No. of certifications (HACCP, GMP,

GAP, GLP, ISO 2000, ISO14000 etc.) a company have

>3 H 3 A 2 L 1 VL 0 Customer Satisfaction for

Q&S VH How likely is that you will recommend

(company X) to a friend or colleague? (0 to 10 scale). Random customers are asked and the average score is calculated.

9-10 H 7-8 A 4-5 L 2-3 VL 0-1 Categorisation as per

remaining shelf life VH Sorting on information on the

remaining shelf life of entity updated in the function of temperature condition experienced in cold chain

Automatic H Semi-automatic A Manual L Occasional VL Never Traceability At farmer’s place VH No. of points a product is traces with

RFID/ barcode/ smart tags and Trucks with temperature indicators/ GPS etc.

>10 During transit H 7-9 At retail store A 5-6 L 2-4 VL 0-2 The degree of details of

information about items monitored

VH No. of information (time, temperature, humidity, expected shelf life, price, colour, weight, volume, sell by date etc.) secured about the product while monitoring.

>10 H 7-9 A 5-6 L 2-4 VL 0-2 Degree of automation VH The degree of automation (Manual,

semi-automatic, automatic) of item identification and data collection process.

Automatic H In between A Semi-automatic L In between VL Manual Service level No. of billing stations VH No. of counters/ 1000m2 >4 H 4 A 3 L 2 VL <1 Convenience

VH No. of store in a city >10/ city

H 8-10/ city A 5-7/ city L 3-4/ city VL 1-2/ city Operating hour VH Operating time for store 16-24hr H 9-16 A 7-9 L 6-7

VL

<6


Payment method VH No. of methods ( Credit card, Debit > 4


19


Payment method VH No. of methods ( Credit card, Debit card, Cash, membership card, on-line payment, phone payment , other payment gateways)

> 4 H 4 A 3 L 2 VL 1

Delivery coverage VH Refrigerated home delivery area covered

>¾ area of the city H ¾ area of the city

A ½ area of the city L ¼ area of the city VL <¼ area of the city Product availability VH Average no. of items out of stock <3 H 3 A 4 L 5 VL >5 Return on assets (ROA)

Net profit to sales VH (Net profit/ total sales) x 100 >80% H 60-80%

A 40-60% L 20-40% VL <20% Total asset utilization VH Total sales/ total asset owned >80% H 60-80% A 40-60% L 20-40% VL <20% Innovativeness New launch of technology

New launch of service New marketing event

VH Reduction in time (or cost)/ total time (cost) x100 (Sales after new service or event/ total sales) x 100

>80% H 60-80% A 40-60% L 20-40% VL <20%

Relation Customer

Farmer Employee

VH Average satisfaction of selected customer/ farmer/ employee (0-10 scale)

8-10 H 6-8 A 4-6 L 2-4 VL 0-2 [a] VH: Very High, H: High, A: Average, L:Low, VL: Very Low

The aim of the second stage of the framework is to provide guidelines for attaining continuous improvement, by the selection of more efficient processes learned from the competitors. These processes could be considered as potential alternatives to improve the cold chain performance of the company. There could be various alternatives for an improvement, which can be compared to a set of decision factors (or company’s strategy). As discussed earlier in this section, eight decision factors are finalized on which the potential alternatives would be judged. The definitions of decision factors are explained in Table 3. The rating and evaluation standard of decision factors are given in the last column of Table 3, to enable consistency during the entire selection process.


20

Table 3: Consistent measurement scale of companies’ decision factors for improvements assessment

Decision Factors & Definition Rating Evaluation Standard Effectiveness: Improvement from an alternative is a prime concern. Degree of effectiveness divulges how much the alternative can help and its suitability to improve the current situation.

VH Forecasted degree of change in the corresponding sub-criteria

>90%

H 60-90% A 30-60% L 0-30%

VL <0% Payback period: Payback period is the simplest method of looking at any proposed improvement. It refers to the period of time required for the return on an investment to "repay" the sum of the original investment on the improvement alternative.

VH Forecasted time period between the installation of alternative and improvement begin

<2 days H 2-7 days A 1-3 weeks L 2-3 weeks

VL >3 week

Added cost: The extra costs associated with improvement alternative must be considered for improving the existing situation and for the future strategy and development. It includes expenses during the set-up and operation cost of the alternative.

VH Forecasted (Added cost in set up, running and maintenance/ total cost) x 100

>50% H 40-50% A 30-40% L 10-20%

VL <10%

Added time: Time is an important criterion as more cost is involved if more time is spent on alternative improvement. This includes the extra amount of time spent for investigating the suitability, setting-up and operating the corresponding alternative.

VH Forecasted research and set-up time

>8 weeks H 5-8 weeks A 3-5 weeks L 1-3 weeks

VL < 1 week

Capability: It is defined as the ability of a company to manage and monitor the alternative so as to achieve the improvement. It is vital, as it may be possible that the alternative itself is very effective, but the company does not have any knowledge and technique to operate the alternative.

VH Forecasted percentage of delay or error caused

0-3% H 3-5% A 5-15% L 15-30%

VL >30%

Adhesion with Existing system: A complete adhesion of the improvement with the existing system is must for better overall performance of the system. This can be measured in terms of time required to integrate the alternative with the existing system completely, without causing any disturbance of performance.

VH Forecasted time required by alternative to adhere with existing system

< 1day H 1-3 days A 3-7 days L 1-2 weeks

VL > 2 weeks

Top management: This refers to the degree of willingness of management to accept the alternative with the belief of improvement and further participation by the highest-level executives, which results in more efficient and effective preparation and implementation.

VH Degree of willingness from top management to accept the alternative (0-10 scale)

8-10 H 6-7 A 4-5 L 3-4

VL 0-2

Constraints: A constraint is a condition that a solution or answer must satisfy. The number and variety of limitation and restriction existed in selecting any particular alternative is considered as a constraint. Constraint is treated as unwanted factor to lower the choice of selecting alternative.

VH Internal and external constraints

>8 constraints H 8-6 constraints A 5-4 constraints L 3-2 constraints

VL 0-1 constraint


21

Once the CMS has developed, a consistent measuring scale and benchmarking methodology may be implemented by a cold chain performance manager (evaluator) for understanding the present strengths and weaknesses of their companies vis-a-vis their competitors. They can identify better processes from their competitors, and benchmark them for improving the weaknesses. Managers can further analyze the effectiveness of the potential improvement opportunities, as per current operational conditions and strategies of the company. This framework also facilitates the decision makers to understand the complex relationships of the relevant attributes in the decision-making, which may consequently improve the accuracy of the decision. Different companies can choose their own attributes and sub-attributes with different values of relative influences, to best suit their own goals and business strategies.

ConclusionMaintaining a cold chain is a far complicated process than it is perceived to be. This study has attempted to present a performance improvement system that tries to address the complexities of cold chain evaluation with a focus on the practicing manager’s efforts towards improvement. The cold chain managers (evaluators) can judge the performance of the cold chain in a more effective way, as data collection is relatively easy and accessible due to the consistent measuring system defined for all the qualitative and quantitative attributes. The consistent measurement scale has facilitated to evaluate performance more reliably for each attribute and sub-attribute.

References Ames, H. (2006), “Authentication from a cold chain perspective”, Pharmaceutical Commerce. Internet resource http://www.pharmaceuticalcommerce.com/frontEnd/main.php?idSeccion=327Aramyan, L.H., Oude Lansink, A.G.J.M., Van der Vorst, J.G.A.J. and Van Kooten, O. (2007), “Performance measurement in agri-food supply chains: a case study”, Supply Chain Management: An International Journal, Vol. 12 No.4, pp. 304–315.Beamon, B.M. (1999), “Measuring supply chain performance”, International Journal of Operations & Production Management, Vol. 19 No. 3, pp. 275-92.Bogataj, M., Bogataj, L. and Vodopivec R. (2005), “Stability of perishable goods in cold logistic chains”, International Journal Production Economics, Vol. 93–94, pp. 345–356.Gunasekaran, A., Patel, C. and Tirtiroglu, E. (2001), “Performance measures and metrics in a supply chain environment”, International Journal of Operations & Production Management, Vol. 21 No. 1/2, pp. 71-87.Joshi R., Banwet D.K. and Shankar R. (2009), “Indian cold chain: modeling the inhibitors”, British Food Journal, Vol. 111 No. 11, pp. 1263-1280.Khan, A. U. (2005), “The domestic food market: is India ready for food processing?” Conference on SPS Towards Global Competitiveness in the Food Processing Sector, 5 September Pune, India. Internet resource http://nationalrenderers.org/assets/essential_rendering_book.pdf

Mangina, E. and Vlachos I.P. (2005), “The changing role of information technology in food and beverage logistics management: beverage network optimization using intelligent agent technology”, Journal of Food Engineering, Vol. 70 No.3, pp. 403–420.Salin, V. and Nayga, R.M. (2003), “A cold chain network for food exports to developing countries”, International Journal of Physical Distribution & Logistics Management, Vol. 33 No. 10, pp. 918 – 933.Smith, G.C.,Tatum, J.D., Belk, K.E., Scanga, J.A., Grandin, T. and Sofos, J.N. (2005), “Traceability from a US perspective”, Meat Science, Vol. 71 No.1, pp. 174-193.Sowinski, L. (1999), “Keep your big deal from melting away: shipping perishables call for efficiency and expertise”,

World Trade, Vol. 12 No.3, pp.70-72.Thron, T, Nagy, G. and

Wassan,N. (2007), “Evaluating alternative supply chain structures for perishable products”, The International Journal of Logistics Management, Vol.18 No.3, pp. 364-384.Viswanadham, N., (2006), “Can India be the food basket for the world?” working paper series ISB Hydrabad. Internet resource www.isb.edu/faculty/Working_Papers_pdfs/Can_India_be_the_Food_Bask et_for_the_World.pdf

------------------------------------

“...Maintaining a cold chain is a more complicated process than it is perceived to be.....”

Crossword Answers

Across Answers 2. VALUE 3. POLICIES 6. CORPORATE 8. VOICE 9. INTERFUNCTIONAL 10. DISTINCTIVE

Down Answers 1. QUALITY 3. PRODUCTDESIGN 4. OBJECTIVES 5. OPERATIONS 7. INVENTORY


22

Carbon Footprint in Supply Chains and Ways to address the same

What is Carbon Footprint?Carbon footprint which results in global warming is a subject that is being hotly discussed all over the world. In fact, the countries of the world have got together un-der Kyoto Protocol ( an international agreement linked to the United Nations Framework Convention on Cli-mate Change) to discuss this major issue and to commit to corrective action. As of August 2011, 191 countries have signed and ratified the protocol. Before understand-ing what carbon footprint is, it is necessary to know the meaning of Greenhouse gases. (GHG)Greenhouse gases include the many heat-trapping trace gases that reside in the earth’s atmosphere. Two common greenhouse gases are water vapour and carbon dioxide. Methane, ozone (03), CFCs, and nitrogen oxides are some others. These gases absorb infrared radiation and help regulate the planet’s climate. This regulation is called the greenhouse effect.While we actually need the g r e e n h o u s e effect to survive on planet earth, ex-cessive GHG become h a r m f u l , resulting in global warming or climate change. Cur- rently, the world has excess of Greenhouse Gases. Activities such as burn-ing coal and oil, driving cars with gasoline, raising livestock and other human- based activities create greenhouse gases. Natural calamities like volcanoes also result in greenhouse gas-es, but human activity results in the largest amount of greenhouse gases. Carbon Footprint refers to the amount of greenhouse gases produced in our day-to-day lives through burning fossil fuels for electricity, heating and transportation etc. A carbon footprint is a measure of the impact our activities have on the environment, and in particular climate change. Just as we leave footprints when we walk on sand or mud or with wet feet, our activities leave carbon footprints. Thus the carbon footprint is a measurement of all greenhouse gas-es we individually produce and has units of tonnes (or kg) of carbon dioxide equivalent. There are different methods of calculating the emissions for different activities. The measurement techniques are outside the purview of this article but a few examples are mentioned as below. A 2.5 tonne AC emits 3 Kgs of CO2 in an hour. A geyser generates 3.3Kgs of carbon per hour. A car that gives a mileage of 10 kilometres per litre of petrol leaves 232 grams of CO2 per km.Between 1991 and 2005, CO2 emission has gone up by 25% worldwide. It is expected to increase at a faster rate if actions are not taken to reduce carbon emissions.

Effects of Global WarmingRecent studies have shown that unimaginable catastrophic changes in the environment will take place if the global tem-peratures increase by more than 2° C (3.6° F). A warming of 2° C (3.6° F) corresponds to a carbon dioxide (CO2) concen-tration of about 450 ppm (parts per million) in the atmos-phere. As of beginning of 2007, the CO2 concentration is already at 380 ppm and it rises at an average of 2 - 3 ppm each year, so that the critical value will be reached in approximately 25 to 30 years from now. The increase in temperature will lead to significant disruption in a g r i c u l - ture, like food availability l e a d i n g to increased food prices. There will be increase in heat related diseases, like malaria, heatstroke etc. Storms and hurricanes like Kat-rina may become more frequent. Wild life species will either become extinct or will be close to extinction. If the carbon levels keep increasing at the present rate, by middle of this century, a quar- ter of our existing species will be non- existent. This will have a lot of damaging effects, because of the reduced bio activity. For e.g. some pests which are con-trolled by such species will roam more freely and will significantly reduce food available to human beings.Another issue is the rise in sea levels. In the 20th century, the worldwide average temperature climbed 0.6 degrees Cel-sius. In 2001, the IPCC (Intergovernmental Panel on Climate Change) reported that the world’s average temperature will increase by between 1.4 and 5.8 degrees Celsius by end of this century As these rising temperatures melt ice, especially in Greenland and Antarctica, and create thermal expansion, sea levels will rise by 20 inches to three feet higher by the end of the century than they are today. 70% of human activi-ties in the world happen by the side of sea and a rise in sea level will erase a significant portion of our civilized world. In Australia, over 700,000 buildings have been estimated as being at risk of the effects of rising sea levels. There will be mass migration of population from the coastal areas to the interior and Governments will be hard pressed to handle such a migration. How to reduce Carbon Footprint in Supply Chain?In a supply chain, carbon footprints exist at every stage, starting from the supplier and downstream up to the cus-tomer. Even when the customer uses the products, he cre-ates carbon footprint. There are various ways by which an organization can reduce carbon footprint in supply chain. Even a small job like replacing a tube light with CFL will help. Avoiding photocopies or taking printouts on both sides of the paper will contribute their own small bits to reduced carbon footprints. 1. AVOID WASTE

One most important factor is avoidance of waste. A waste means that the item has to be produced again, which re-sults in unwanted CO2 emission.

Author Prof. K.L. Bhaskaran CFPIM, CSCP, CTL,CPMAdjunct Faculty, IIM Kozhikode


23

It is essential that companies control their quality and inventories closely to ensure that wastage is avoided.

2. MAINTAIN YOUR MACHINESAnother aspect is proper machine maintenance. A ma-chine that is not maintained properly tends to contrib-ute more CO2 than a well maintained machine.

3. REDUCE USE OF ENERGYOne method of reducing carbon footprint is to analyse the use of energy and reduce the same. This should start at the stage of product design itself. For exist-ing products, companies should analyse various ways of reducing use of energy and other resources used in manufacturing.

4. USE RENEWABLE ENERGYCompanies should try their best to use renewable en-ergy rather than fossil fuels.

5. RESUE/RECYCLEThe companies should try to reuse/ recycle materials. Products should be designed so that the components and packaging materials can be more easily separated for reuse/ recycle. A well planned end of product life cycle design should take into account potential for re-use at its best and recycle at its worst. Recycling con-sumes far less energy and thus emits less CO2 as com-pared to fresh manufacture. Countries like Germany require that the domestic brewers should use refillable bottles.

6. ACHIEVE COMPONENT COMMONALITYThe product design should also aim to reduce the va-rieties of components among different product groups, so that longer production runs can be made to reduce energy consumption. Also, if a product becomes obso-lete, the components can be used in other products, without the need to produce new components.

7. PLANT TREESTress should be planted wherever possible, as they ab-sorb CO2. An I.T. Company in its tech park in Bangalore has planted plants and preserved the old trees which absorb atmospheric carbon dioxide, leading to the car-bon sequestration and reduced emissions. The compa-ny is positive in carbon foot prints and has become an environment-friendly company

8. REVIEW LOGISTICSOne area in Supply Chain where Carbon Footprint plays a major role is in Logistics. Every mode of transporta-tion emits CO2. In India, with road conditions being what they are, there is excess fuel consumption than what it should be and as such, excess CO2 is released into the atmosphere. While developed countries follow B-O-O-T or B-O-T business model, we seem to follow the business mod-el of B-N-R, namely, Build, Neglect and Rebuild. Poor roads in India cost the Government Rs.35, 000 crores every year. Poor roads result in excess wear and tear of the vehicle, excess fuel consumption, increased travel time, all leading to increased CO2 emission.

Another aspect is proper Logistics planning by which the Logistics department should always strive to load the trucks fully rather than send less-than-truck loads. This will save fuel and result in less carbon emission.

9. AVOID UNNECESSARY PACKINGUnnecessary additional packing should be avoided as this will lead to increased weight and additional fuel consumption. Also, the additional packing will need to be manufactured which again results in carbon emis-sion.

ConclusionThe increased carbon footprint in the environment is a threat to our life and it is not a problem of only Governments and industries. (Some Governments are planning to bring in legislations for the same.) At the end of it all, it is the individual who will be affected. It is absolutely essential that the efforts to reduce carbon footprint is ingrained in the minds of every individual and organization. This is a war and the world has to win, if humanity has to survive.

__________________________________


24

A Note on Sustainable Supply Chain Management

IntroductionSustainability or sustainable development is a much-discussed and significant topic of today in the light of increasing environmental degradation (global warming, depletion of the ozone layer etc.) and violation of human rights (Gladwin et al., 1995). Sustainable development is defined as the development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs (World Commission on Environment and Development, 1987, also known as the Brundtland Commission). Sustainability has three dimensions: economic, social and environmental, also known as the triple bottom line or 3BL, as shown in Figure 1.

While economic viability is necessary for an organization to survive, it is not sufficient to sustain the organization in the long run if it causes irreversible damages to the ecosystem by emitting greenhouse gases (GHG) and toxic wastes and depleting non-renewable resources or it fails to ensure safety, security, dignity, healthcare, minimum wage, indiscrimination and better working conditions for its employees, the community and the society in general. Therefore, it has become imperative for any organization to behave in a socially and environmentally responsible manner while trying to achieve its economic goals.

Evolution of Sustainable Supply Chain Management Although supply chain management has been widely studied since the last two decades, the discussion on sustainability in the supply chain literature has gained momentum since the early 2000s.

Author Prof. Subrata Mitra Operations Management GroupIndian Institute of Management Calcutta


25

Figure 2 traces the evolution of supply chain management (SCM) through the last four decades.The evolution of SCM can be traced back to “distribution management” in the 1970s where there was no coordination among the various functions of an organization, and each was committed to attain its own goal. This myopic approach transformed into “integrated logistics management” in the 1980s that called for the integration of various functions to achieve a system-wide objective. SCM, which evolved in the 1990s due to increased competition and globalization, further widens this scope by including the suppliers and customers into the organizational fold, and coordinating the flow of materials and information from the procurement of raw materials to the consumption of finished goods. The objectives of SCM are to eliminate redundancies, and reduce cycle time and inventory so as to provide better customer service at lower cost (Mitra and Chatterjee, 2000). In the 2000s, it became imperative for a company to not only incorporate suppliers and customers into the supply chain, but also take into consideration the interests of all the stakeholders including the community, society, government, NGOs and other public interest groups. The notion that besides fulfilling its economic objectives, a supply chain has to behave in a socially and environmentally responsive way gave birth to the concept of sustainable supply chain management (SSCM).

SSCM in Relation to JIT, TQM and Lean ManufacturingSSCM is a natural extension of the earlier philosophies of JIT, TQM and lean manufacturing, as argued by Corbett and Klassen (2006). According to the authors, any system that minimizes inefficiencies is also more environmentally sustainable. The goal of TQM is zero defects while the goal of SSCM is zero waste. The statistical process control (SPC) tools for TQM are also applicable to SSCM. TQM that integrates internal process controls of suppliers, manufactures and customers, gives rise to Total Quality Environmental Management (TQEM) when other stakeholders and the natural environment are also taken into consideration (See Figure 3).

Environmental and Social Dimensions in SSCMIn the context of supply chains, sustainability has been referred to more in terms of conforming to environmental norms and standards than meeting social expectations. However, that does, in no way, mean that supply chains are indifferent to their social responsibilities. The agenda is gaining momentum in an increasing number of global supply chains, and as a result, the International

Organization for Standardization (ISO) has initiated the development of the ISO 26000 international standard on social responsibility, following the well-known ISO 9000 and ISO 14000 standards on quality management and environmental management systems, respectively (Piplani et al., 2008). The role of environment comes more often in the discussion on sustainable supply chains in the context of environment-friendly product and process design, supplier collaboration for “green” purchasing, adoption of cleaner technologies, environmentally safe storage and transportation of goods, and returns management including disposal of end-of-life products and product recovery for reuse and reselling on secondary markets, leading to the evolution of phrases such as “reverse logistics”, “closed-loop supply chains” and “green supply chains”. Figure 4 represents a closed-loop supply chain and the different product recovery options based on the quality of returns and the degree of disassembly

Implementation of SSCM PracticesIn many developed countries in North America and Europe, manufacturers are being held responsible by law for collection, transportation and disposal or recovery of their products and packaging after use since areas earmarked for land-filling are gradually shrinking. Even the awareness among the general public towards environment-friendly products and processes has substantially increased. There is a market for “green” products, which is estimated to be in excess of USD 200 billion (Carter and Ellram, 1998). Since manufacturers are now being held accountable for the entire life cycle of their products, they should strive to design more eco-friendly and easily recoverable products, and recover the economic value as far as possible from returns. This would not only help them achieve economic sustainability, but also facilitate projecting their environmental responsibility and building a “green” corporate image.Incorporating SSCM practices into their organizations, companies can realize first-mover, competitive advantages that would be difficult for their competitors to easily imitate. Also, they can explore new market opportunities and lobby with the government to frame laws and regulations to their advantage. For example, BMW’s initiative towards design-for-disassembly for product take-back and recycling became a standard for the German auto industry and gave BMW a definite cost advantage over its competitors (Porter and van der Linde, 1995; Shrivastava, 1995; Kleindorfer et al., 2005).


26

Further reviews and more on the implementation of SSCM practices are available in Linton et al. (2007), Carter and Rogers (2008), and Guide and van Wassenhove (2009).Large MNCs such as Xerox, GE, GM, Volvo, HP, 3M and Dow Chemical have made SSCM a part of their corporate mission. 3M’s Pollution Prevention Pays (3P) and Dow Chemical’s Waste Reduction Always Pays (WRAP) programmes have saved the respective companies millions of dollars and prevented thousands of tonnes of pollution over a number of years. Du Pont invested in quality monitoring devices to reduce production stoppages that not only lowered the generation of scraps but also improved productivity. Tetrapak innovated packaging technology to use recyclable materials that conserves energy. Toshiba and Hitachi gained competitive advantage by developing renewable acid-free batteries. Hitachi redesigned its consumer products to reduce the disassembly time (also the assembly time) for easy recovery and fast-time-to-market. Toyota’s hybrid petrol-electric car, Prius, significantly reduced GHG emissions. Mazda’s “clean” engine using the rotary technology reduced carbon emissions. There are many more examples of successful implementations of SSCM practices in multinational corporations (Shrivastava, 1995). Indian companies, especially the exporters, are also pressured into implementing environmental standards by their international clients. Automotive components manufacturers, drugs and pharmaceuticals majors, and large buyers of textiles, handicrafts, leather goods and food products in the USA and Europe are now demanding environmentally responsive behaviour from suppliers globally, including India (Mitra, 2004). India is one of the top emitters of GHG, emitting about 1.5 billion tonnes of CO2 into the environment. India ranks fourth in terms of total emissions and fifth in terms of per capita emissions in the world (Source: http://www.worldbank.org). In the event that India succumbs to the pressure from the developed countries to agree to a mandatory cut in emissions or it voluntarily sets a target for itself (e.g. 20% reduction in emissions by 2020), there are significant implications for Indian supply chains to reduce their carbon footprints in the coming years. Although product take-back and recycling have not caught up in India as much as in Europe due to a lack of awareness and regulations, there are immense opportunities for Indian corporations to participate in Clean Development Mechanism (CDM) projects and earn carbon credits, which can be traded on international climate exchanges. ITC Ltd., for example, is currently involved in 8 CDM projects that will significantly reduce the emission levels of ITC’s different divisions and enable it to earncarbon credits (Source: Sustainability Report 2010, http://www.itcportal.com). Therefore, it is imperative for both the policymakers and the corporations that appropriate regulations are framed, incentives are offered and awareness among the general public is created to facilitate the widespread adoption of SSCM practices that will not only fulfil the economic objectives, but also address the environmental and social dimensions of sustainability.References1. Carter, C. R. and L. M. Ellram (1998), “Reverse Logistics: A Review of the Literature and Framework for Future Investigation”, Journal of Business Logistics, Vol. 19, No. 1, pp. 85-102.

2. Carter, C. R. and D. S. Rogers (2008), “A Framework of Sustainable Supply Chain Management: Moving Toward New Theory”, International Journal of Physical Distribution & Logistics Management, Vol. 38, No. 5, pp. 360-387.3. Corbett, C. J. and R. D. Klassen (2006), “Extending the Horizons: Environmental Excellence as Key to Improving Operations”, Manufacturing & Service Operations Management, Vol. 8, No. 1, pp. 5-22.4. Gladwin, T. N., J. J. Kennelly and T-S. Krause (1995), “Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research”, The Academy of Management Review, Vol. 20, No. 4, pp. 874-907. 5. Guide, Jr., V. D. R. and L. N. van Wassenhove (2009), “The Evolution of Closed-Loop Supply Chain Research”, Operations Research, Vol. 57, No. 1, pp. 10-18.6. Kleindorfer, P. R., K. Singhal and L. N. van Wassenhove (2005), “Sustainable Operations Management”, Production and Operations Management, Vol. 14, No. 4, pp. 482-492.7. Linton, J. D., R. Klassen and V. Jayaraman (2007), “Sustainable Supply Chains: An Introduction”, Journal of Operations Management, Vol. 25, pp. 1075-1082.8. Mitra, S. (2004), “Managing Environmental Issues in Supply Chains”, In: Sahay, B. S. (Ed.), Emerging Issues in Supply Chain Management, Macmillan, pp. 60-68. 9. Mitra, S. and A. K. Chatterjee (2000), “Managing Relationships in Supply Chains of the 21st Century”, In: Seth, J. et al. (Eds.), Customer Relationship Management: Emerging Concepts, Tools and Applications, Tata McGraw Hill, pp. 336-345.10. Piplani, R., N. Pujawan and S. Ray (2008), “Sustainable Supply Chain Management”, International Journal of Production Economics, Vol. 111, pp. 193-194.11. Porter, M. E. and C. van der Linde (1995), “Green and Competitive: Ending the Stalemate”, Harvard Business Review, Vol. 73, pp. 120-133.12. Shrivastava, P. (1995), “The Role of Corporations in Achieving Ecological Sustainability”, The Academy of Management Review, Vol. 20, No. 4, pp. 936-960.13. Thierry, M., M. Salomon, J. van Nunen and L. N. van Wassenhove (1995), “Strategic Issues in product Recovery Management”, California Management Review, Vol. 37, No. 2, pp. 114-128.14. World Commission on Environment and Development (1987), Our Common Future, Oxford University Press, Oxford, England.

___________________________

SUSTAINABILITYSTUDENT OPINION

O P S W O R L DS U S T A I N A B I L I T Y S T U D E N T O P I N I O N

28

Industrial Ecology – Improving Operations Management

DefinitionsSustainability can be defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. i

As operations management is concerned with systems that handle the delivery of a firm’s principal product or service, the concept of sustainable operations management projects the belief that it is possible to conduct efficient and successful operations management while also addressing the organization’s impact on the environment.Within successful adoption of such policy, all elements of an organization’s systems including procurement, operation and delivery are impacted by the need to conserve and protect our environment. As long ago as 1976, the authors CJ Constable and CC New projected that 80% of an organization’s capital investment will be within the operations area. In a typical industrial application, the majority of employees are retained within the operating arena.“Sustainable operations management is not just concerned with the ubiquitous supply-chain and the process of introduction of raw material through completion and delivery, but must also address the wider issue of design and development, byproduct and waste disposal. An enterprise should conduct a comprehensive life cycle analysis to ensure that its sustainability efforts are as inclusive as possible.”As such, because all organizations must now be concerned with and must proactively reduce their carbon footprint, sustainable practices must be developed not just throughout their business, but specifically targeted to operations.ii

The Triple Bottom-LineIn the past, the traditional models had taken only economic development as the driving force for a firm. With the advent of sustainability, the bottom-line has extended itself into three congruent goals – • Economic goals• Social goals• EnvironmentThe concept of TBL demands that a company’s responsibility lies with stakeholders rather than shareholders. In this case, “stakeholders” refers to anyone who is influenced, either directly or indirectly, by the actions of the firm. According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit.iii Theoretical discussions of sustainability tend to cover all three elements of the triple bottom line. Research, however has focused mainly on the relationship between social performance and operational performance, or the

relationship between environmental performance and operational performance.Sustainability is then well developed theoretically, but robust and generalizable simultaneous examinations of all three elements of the triple-bottom-line are generally absent. This is especially true in the operations management literature where almost all of the research examines environmental issues while overlooking the people / social component of sustainability.iv One of the highly talked about approach to create a balance between operations management and environmental issues is Industrial Ecology.

Industrial EcologyIndustrial Ecology aims at viewing the need of operation management not in isolation from its surrounding systems but in concert with them. One seeks to optimize the total materials cycle from virgin material to finished

material to component to product, to obsolete

product, and to ultimate disposal. Factors to be optimized include

resources, energy, and capital.v

In the words of Graedel and Allenby:“Industrial ecology is the means by which humanity can deliberately and rationally approach and maintain sustainability, given continued economic, cultural, and technological evolution. The concept requires that an industrial ecosystem be viewed not in isolation from its surrounding system, but in concert with them. It is a systems view in which one seeks to optimize the total materials cycle from virgin material, to finished material, to component, to product, to obsolete product, and to ultimate disposal. Factors to be optimized are resources, energy and capital”vi

Methods and Tools of Industrial Ecology Industrial ecology offers a realm of methods and tools to analyze environmental challenges at various levels – process, product, facility, national, and global and then come up with responses to facilitate better understanding and provide suitable remedies. We discuss some of the important components in the industrial ecology toolbox below:

Life Cycle Assessmentvii

A central tenet of industrial ecology is that of life-cycle assessment (LCA). The essence of LCA is the examination, identification, and evaluation of the relevant environmental implications of a material, process, product, or system across its life span from creation to disposal or, preferably, to recreation in the same or another useful form. The formal structure of LCA contains three stages: goal and scope definition, inventory analysis and impact analysis, each stage being followed by interpretation of results (SETAC, 1993).

“...Industrial ecology is the means by which humanity can deliberately and rationally approach

and maintain sustainability, given continued economic, economic, cultural, and technological evolution...”

Author Mr. Himanshu Joshi Executive Post Graduate Program, Indian Institute of Management Bangalore

O P S W O R L D S U S T A I N A B I L I T Y S T U D E N T O P I N I O N

29

The concept is illustrated in Figure as under:

First, the goal and scope of the LCA are defined. An inventory analysis and an impact analysis are then performed. The interpretation of results at each stage guides an analysis of potential improvements (which may feedback to influence any of the stages, so that the entire process is iterative). There is perhaps no more critical step in beginning an LCA evaluation than to define as precisely as possible the evaluation’s scope: What materials, processes or products are to be considered, and how broadly will alternatives be defined? To optimize utilization of resources in an LCA exercise, the depth of analysis should be keyed to the degree of freedom available to make meaningful choices among options, and to the importance of the environmental or technological issues leading to the evaluation.

Design for Environmentviii Product design engineers are always faced with the challenge of optimizing the multitude of attributes that determine the success or failure of the product. The paradigm for such design considerations is termed “Design for X” (DfX), where X may be any of a number of attributes such as assembly, compliance, disassembly, environment, manufacturability, reliability, safety and serviceability. Design for Environment (DfE) is the DfX-related focus of industrial ecologists. The core theme of DfE philosophy is that it should improve the environmentally related attributes of a product while not comprising other design attributes such as performance, reliability, aesthetics, maintainability, cost, and time to market. DfE approaches systematically evaluate environmental concerns during the product life cycle stages of pre-manufacture, manufacture, delivery & packaging, use, and end of life and accordingly set targets for continual improvements. The choice of materials during pre-manufacture and their efficiency of utilization during product manufacture, energy use during manufacturing and product use, environmentally friendly disposal or reincarnation of products at end of life are some of prime

considerations in DfE. DfE is also a ‘win-win’ proposition in that it provides a corporation with a competitive edge in an ever-tightening regulatory environment thus providing ongoing product innovation.

Industrial Symbiosisix The industrial ecologist views the economy as a closed system, similar to a natural system, in which the ‘residues’ from one system are the ‘nutrients’ for another. The concept known as industrial symbiosis is a current topic of research for industrial ecologists and environmentalists in identifying strategies to enable businesses to `close the loop’. The objective is to create or encourage the formation of industrial production systems that function similarly similar to biological food chains. In either natural or industrial systems, symbiosis occurs when two or more organisms form an intimate association, either for the benefit of one of them (parasitic symbiosis) or for both or all of them (mutualistic symbiosis) such that there is high degree of synergy between input and output flows of resources. Industrial symbiosis may occur opportunistically or can be planned. Planned industrial symbiosis appears to offer the promise of developing industrial ecosystems that are far superior environmentally to unplanned ones. Such a system would need to involve a broad sectorial and spatial distribution of participants, and be flexible and innovative. The formation of ecologically balanced industrial systems results in numerous environmental and economic benefits. Economic benefits, which are shared by participating businesses, governments, and communities, are the primary driving force for

setting up such industrial c o n f i g u r a t i o n s . Entrepreneurs can gain appreciable cost

savings from reduced waste management, reduced infrastructure costs, and improved process and product efficiency. There are opportunities for other cooperative ventures such as joint purchasing, combined waste recovery and treatment, employee training, environmental monitoring, and disaster response. The tangible environmental benefits include the reduction of greenhouse gas emissions and toxic air emissions, improving efficiency and conservation in the use of energy, materials and water, improving land use planning and green space development within the industrial complexes, and promotion of pollution prevention and recycling approaches. Transforming the concepts into FrameworkThe above mentioned concepts can be formulated into a framework as under:ApplicationApplying the above mentioned tools in a real life operations management scenario changes the supply chain as per the following diagrams.x Please note that the supply chain ended at “Ship Landfill” in the traditional approaches. It has been extended to include the disposal and reusability of the various parts from the products that came back to the company as:• Commercial Returns• Warranty Returns• End of Use Returns

“...Industrial symbiosis may occur opportunistically or can be planned....”


30


31

ReferencesiSustainable Operations by Mark Pagell, Stephen A. Dobson & Iuri Gavronski (http://www.scholarpedia.org/article/Sustainable_Operations#WCED_1987)

iiSustainable Operations Management by Verisae (http://www.verisae.com/page/1/sustainable-op-erations-management.jsp)

iiiWikipedia – Triple Bottom Line (http://en.wikipedia.org/wiki/Triple_bottom_line)

ivSustainable Operations by Mark Pagell, Stephen A. Dobson & Iuri Gavronski (http://www.scholarpedia.org/article/Sustainable_Operations#WCED_1987)

vTeaching Sustainable Operations Management at BGI and PWC by Dwight Collins (http://nbis.org/nbisresources/operations_product_service_man-agement/teaching_sustainable_operations_man-agement%20_dwight_collins.pdf)

viGraedel and Allenby, 2002

viiIndustrial Ecology – Amit Kapur and Thomas E Graedel

viiiIndustrial Ecology – Amit Kapur and Thomas E Graedel

ixIndustrial Ecology – Amit Kapur and Thomas E Graedel

xTeaching Sustainable Operations Management at BGI and PWC by Dwight Collins (http://nbis.org/nbisresources/op-erations_product_service_management/teaching_sustain-able_operations_management%20_dwight_collins.pdf)

________________________________________


32

Inventory Management of E-waste Processing Plants in India

1. IntroductionElectronic waste or E-waste is a generic term used for electronic products after the end of their useful life, once they are no longer desired (end-of-use) or can no longer

be used (end-of-life) by their user. In a recent report by Toxics Link (2011),

the global e-waste market is forecast to reach 53

million tonnes by 2012 increasing at 6% every year. The exponential

growth of electronic products and its rapid

rate of obsolescence have resulted in significant amount of e-waste piling up in India (UNEP 2007). E-waste management in India is dominated by the unorganized sector. Their practices

negatively impact the environment and health.

E-waste is typically composed of materials that are 1) toxic

for health and environment when processed in uncontrolled conditions or

left untreated 2) valuable based on whether the material is precious, non-renewable resource etc. Thus, closing the loop of e-waste has an economic and environmental dimension. The

economic dimension attracts private firms to set-up e-waste processing plants (EPPs) with government approval. India has about 40 EPPs registered with the government. Government of India has drafted E-waste Management and Handling Rules 2011 that makes manufacturers responsible for managing their electronic products after it is discarded by consumers. The legislation would come into effect from May 2012. This has resulted in more EPPs being set up with government approval, expecting that manufacturers would outsource this requirement. The EPPs are stand-alone plants that process only e-waste. There is growing interest of venture capitalists in this sector. The market for authorized EPPs is anticipated to grow at a compounded annual growth rate of 24 % and touch Rs. 1,500 million by 2013 (Frost & Sullivan 2009). Stand-alone plants that process end-of-use (EOU) and end-of-life (EOL) products faces unique challenges that are not extensively studied (Gunter et. al. 2003). This paper focuses on stand-alone plants that process only EOU and EOL electronic products or e-waste. The paper explores unique characteristics of EPPs’ inventory that necessitate studies exclusive to such inventories.

2. Product recovery systemThe product recovery system of EPPs is illustrated in Exhibit 1. This is a conceptual framework and highlights the key phases.

Phase 1 EOU electronic products or e-waste is procured from:a) foreign market through legal importsb) domestic market that includes • end consumers like firms and households • producers who outsource e-waste processing • scrap dealers

Author Mr. T S KrishnanFP in Production and Operations Management, Indian Institute of Management Bangalore


33

Phase 2Though various processing operations are employed we simplify them to the following: recovering components, recovering materials and disposal. Typically EPPs are involved in repair and refurbishments (component recovery), recycling (material recovery) and disposal. They may not have the technical know-how to remanufacture EOU products of various brands to the desired standards.

Phase 3Recovered components are sold to dealers in the secondary market and manufacturers. Recovered materials are used by manufacturers to produce new products. The remaining components and materials that cannot be sold are disposed of safely.

An example of a used computer entering the EPP would help understanding the product recovery system (Toxics Link 2003). EPP receives EOU computers from firms. The computer has various components like Cathode Ray Tube (CRT), circuit board, Poly Vinyl Chloride (PVC) wire, hard disk, capacitor etc. If the components are intact and functional or can be made functional with minor repair and refurbishments it is sold. Ex: a functional CRT is regunned (a refurbishing operation) and used for manufacture of televisions and computers for local brands. If components are not functional or cannot be made functional, materials are recovered. Ex: Aluminium, gold and copper recovered from capacitor, circuit board and PVC wire respectively.

The operations done by EPPs in India vary from one to another. One EPP, Ash Recyclers, focuses only on refurbishing. Another EPP, E-Parisara, focuses on component and material recovery. Many EPPs sell the recovered components to smeltors, outside the country, for precious metal recovery.

3. Inventory management issuesInventory issues that are unique to EPPs are discussed under different headings below.

a) Types of inventoriesA natural categorization of inventories (based on value added in each processing stage) in the context of e-waste processing is:1. E-waste inventory in Phase 12. WIP (Work-in-process) inventory in Phase 2 during processing operations3. Recovered components inventory in Phase 34. Recovered materials inventory in Phase 35. Components and materials for disposal in Phase 3It is interesting to observe that in the context of manufacturing, this order is reversed starting from raw materials to the final product

b) Inventory holding motivation and characteristics

1. Uncertainties in e-waste suppliesEPPs have to hold e-waste inventories to ensure continuity of processing operations. One interesting characteristic is that the EPPs cannot order for a specific quantity and type of e-waste. The uncertainties could be summarized as:• when would e-waste be supplied ?• what quantity would be supplied ?• what type of e-waste (computers, televisions etc.) would be supplied ?If a large information technology firm sells its computer and peripheral scrap, it would take 3 to 5 years for the firm to sell another fresh scrap. Thus the supply of e-waste in general is lumpy. EPPs cannot afford to lose a bargain saying it cannot accept a particular quantity. The uncertainties are reduced by signing long term contracts with firms.

2. Uncertainties in rare earth suppliesThis could be better understood through an example.

China accounts for 97% of the world’s supply of rare earth; materials that play an essential role in many

electronic products. China has shown itself willing to exploit that monopoly to the fullest during political disputes. On many occasions they have restricted rare earth exports to other countries like Japan and America by violating international trade laws. The world needs to develop non-Chinese sources of these materials (Krugman 2010). A prominent alternative would be to recover materials and components from e-waste. Holding such inventories would help EPPs play a strategic role in the high-tech supply chain.

3. SpeculationIf the value of natural resources like aluminium, gold etc. is expected to increase, holding inventories of that resource or material may be more economical than selling it at current prices. This is the motivation for holding recovered materials.

4. ObsolescenceAn interesting characteristic is that the rate of obsolescence in the electronics industry impacts the inventory of recovered components. Such components are disposed or material is recovered from the components. Even if a component becomes outdated and no more used in the original product, its material can be used for manufacturing other products. Government regulations would also impact the use of some materials. Ex: minimizing or eliminating the use of ‘conflict minerals’ like coltan, a mineral used in capacitors, from the high-tech supply chain (Nathan and Sarkar 2010). Though obsolescence and government regulations also impact inventory management in a typical manufacturing context, the focus is on the input side i.e. phase 1. For EPPs the focus is on the output side i.e. phase 3. If the rate of obsolescence for a component is very high, the recycler may dispose it or recover material (depending on profitability) rather than repairing/ refurbishing it.

“...an interesting characteristic is that the rate of obsolescence in the electronics industry impacts the inventory of recovered components...”


34

c) Relevant inventory costs1. Holding costsFor EPPs, holding costs have to be considered for ‘finished products’ too i.e. recovered components, recovered materials, and disposal items. The holding costs of ‘finished products’ is more important than e-waste inventory holding costs. High uncertainties in e-waste supplies necessitates excessive holding of e-waste inventory. Volatility in prices of materials like gold impact the holding costs as ‘c’ changes every week/month. EPPs would be willing to incur high holding costs of recovered materials by delaying the selling if higher profit could be made. Holding costs are a function of type of inventory and market speculation.

2. Ordering costs/ Procurement costsProcurement costs would vary depending on the mode of procurement. E-waste could be delivered to the plant by the source (firms, households or scrap dealers). EPPs could pick up e-waste from a pick-up point or the source. As discussed earlier, EPPs cannot order a particular quantity of e-waste. Hence the term ordering cost need not be used. They procure e-waste reactively (responding to tenders, auctions floated by firms) and proactively (signing long term contracts with firms, partnering with NGOs). EPPs can afford to incur high e-waste procurement and holding costs if the processing operations are cost efficient and recovered products inventory are smartly managed.

d) Key questionsUnique inventory management issues of EPPs were discussed under different headings. The key questions to be answered to manage inventories efficiently are:•How to tide over uncertainties in e-waste procurement? – Can quantity and type of e-waste supplies be predicted with reasonable accuracy to reduce e-waste inventory costs and utilize resources better?•What should be the optimal inventory size of recovered components/ materials to earn maximum profit?• When to liquidate recovered components/ materials inventory to earn maximum profit?The answers to these questions are a function of the relevant costs and characteristics (uncertainties, speculation and obsolescence) that are specific to EPPs.

4. ConclusionImproving the operational efficiency of EPPs would ensure its economic survival and provide benefit to the environment by reducing the e-waste disposal levels. Inventory management is one of the important measures to improve operational efficiency. This study

highlights the unique issues faced by EPPs in managing their inventory. These issues need to be substantiated by a complete literature review coupled with field studies. This could be followed by building a model that reasonably explains the inventory management issues. Models would help in analyzing what-if scenarios. Such studies would serve as a welcome addition to the scant existing literature on operations management of EPPs.

5. References1) Frost & Sullivan, Study on the Indian Waste Management Services Market, March 2009.2) Gunter K, Bee D, Sutherland J, Inventory Management in Demanufacturing Facilities, Proceedings of the Colloquium on e-Ecological Manufacturing, Berlin, Germany, March 2003.3) Krugman P, Rare and foolish, The New York Times, October 2010.

4) Nathan D, Sarkar S, Blood on Your Mobile?, Economic & Political Weekly, 2010, Vol. 45, No.

43, 22-24.5) UNEP, E-waste: Volume-1 Inventory Assessment Manual, 2007.6) Toxics Link, Scrapping the high-tech myth: computer waste in India, 2003.7) Toxics Link, Waste Electrical and Electronic Equipment- The EU and India: sharing best practices, 2011.

_________________________________

“...improving the operational efficiency of EPPs would ensure its economic survival and provide benefit to the environment by reducing the e-waste disposal levels..”


35

Life Cycle Assessment:the Future of Sustainable Operations Management

During the past three decades, there has been an increasing pressure on the businesses to pay attention to the environmental and social

consequences of their products and services. As a result of this, the corporates have moved towards the concept of triple bottom line, whereby they imbibe the three dimensions – profit, people and planet in their business decisions. With the concept of people and planet coming in, sustainability has now become the buzz word in the corporates around the world. With the evolving need of the businesses to analyse the impact of their operations on the environment they interact with, new methods and concepts have evolved over time. One of them is Life Cycle Assessment (LCA).

History of LCA:LCA had its beginnings in the 1960’s. Concerns regarding the limited supply of raw materials and sources of energy, sparked interest in exploring ways to account for energy usage cumulatively and projecting the future supply and use of resources.In 1969 an internal study was initiated at the Coca Cola Company which laid the foundation of the current Life Cycle Inventory Analysis in the United States.

LCA – the next big thing:Unlike the conventional methods, where the impact of a particular operational activity on some dimension of the environment is quantified, LCA helps in bringing out a more holistic view of the operational activities as a whole. The perspective on which the concept of LCA is based, is that all the processes are interdependent i.e. the effects are transferred from one sub-system to another in a large system.LCA is a “cradle-to-grave” approach for gauging industrial structures. “Cradle-to-grave” begins with the gathering of raw materials from the earth to manufacture and process the products and ends at the point when all materials are returned back to the earth.LCA helps the industries and businesses to assess the impact of their activities on the environment. Incorporating LCA based operations helps the companies, federal facilities, industrial organisations and academia to understand and evaluate their environmental performance, thereby assisting them in their decision making process.

How does LCA help?While deciding between two or more available alternatives, LCA helps the decision makers compare all the major environmental impacts caused by the products, processes or services.

The transfer of environmental impacts from one media to another and from one life cycle stage to another is identified in the process. This information coupled with other factors such as cost, performance and feasibility helps the decision makers select a process or product. This is done with the help of Life cycle management.

Life Cycle Management (LCM):Since, LCA does not determine the most cost effective or most efficient process all by itself. The information developed in an LCA study needs to be used as one important component of a more comprehensive decision process assessing the trade-offs with cost and performance, e.g., Life Cycle Management.“LCM is the application of life cycle thinking to modern business practice, with the aim to manage the total life cycle of an organization’s products and services towards more sustainable consumption and production. LCM is about systematic integration product sustainability e.g. in company strategy and planning, product design and development, purchasing decisions and communication programs.” (Jensen and Remmen 2004) [1]

Phases of an LCA:The framework of Life Cycle Assessment has been shown below:

Fig. 1 - Phases of an LCASource: ISO 1997

Author Shubhi Bansal PGP 2011-13,Indian Institute of Management Shillong


36

Fig. 2 – Life Cycle of a product – and closing the loopSource: Background Report for a UNEP Guide to Life Cycle Management, Feb 2006

The four phases involved in conducting an LCA have been described below– 1. Goal and Scope definition – In this step the product, process or activity is defined and described. The context in which the assessment is to be made and the boundaries, within which the analysis needs to be performed, are identified. That is, the scope of study is defined - whether one/all of the stages (raw material acquisition, manufacturing, use/reuse/maintenance, re-cycle/ waste management) should be included in the study or not. Also, the environmental effects to be reviewed for the assessment are recognized. In totality, this step helps to determine the time and resources needed for the process.2. Inventory Analysis – This step identifies and quantifies energy, water and materials usage and environmental releases (e.g., air emissions, solid waste disposal, waste water discharges) in the process, within the boundaries defined in the first step. In the Life Cycle Inventory (LCI) phase of an LCA, all the data that is relevant is collected and structured. LCI provides the basis for evaluating the comparative impact on the environment and potential improvements.

The four steps in this process include:-Developing a flow diagram of the processes being evaluated-Developing a data collection plan-Collecting data-Evaluating and reporting results

3. Impact Assessment – This step considers the potential human and ecological effects of energy, water, and

material usage and the environmental releases

identified in the inventory analysis. For example, what are the impacts of 10,000 tons of carbon dioxide or 6,000 tons of methane emissions? Which one of these impacts more? What are their prospective effects on smog? On global warming? Etc. An important distinction which exists between life cycle impact assessment (LCIA) and other types of impact analysis is that, LCIA does not necessarily attempt to quantify any specific actual impacts associated with a product, process, or activity. For example, risk assessments are often very narrowly focused on a single chemical/effluent at a very specific location or for a very specific process.

“...an important distinction which exists between life cycle impact assessment (LCIA) and other

types of impact analysis is that, LCIA does not necessarily attempt to quantify any specific actual impacts associated

with a product, process, or activity...”


37

In the case of a traditional risk assessment, it is possible to conduct very detailed modelling of the predicted impacts of the chemical on the population exposed and even to predict the probability of the population being affected. In the case of LCIA, hundreds of chemical emissions (and resource stressors) which are occurring at various locations are evaluated for their potential impacts in multiple impact categories, thus giving an inclusive picture of the situation.4. Improvement Analysis/ Interpretation – In the final step, information from the results of the LCI and LCIA are systematically identified, quantified, checked and evaluated to communicate it effectively for decision making. A clear understanding of the uncertainty and the assumptions used to generate the results is involved in the process.

Application:To understand “how LCA can be applied to a system” let us consider a hypothetical soap bar system. Tallow is the major raw material for soap production, and its primary raw material source is the grain fed to cattle. Production of paper for packaging soap may also be included. The fate of both the soap and its packaging mark the end of the life cycle of this system. Minor inputs could include, for example, the energy required to fabricate the tires on the combine used to plant and harvest the grain.In the bar soap example, one possible usage unit could be a single bar. However, if the product packaging were being analysed at the same time different SKU’s need to be considered.Now, if the LCA were intended to examine whether bar soap should be manufactured using an animal-derived or vegetable-derived raw material source, the system boundaries and units of analysis would be more complicated.Suppose it is required to compare bar soap made from tallow with a liquid hand soap made from synthetic ingredients. Because the two products have different raw material sources (cattle and petroleum), the analysis should begin with the raw materials acquisition step. Because the two products are packaged differently and may have different chemical formulas, the steps of material manufacture and that of packaging would need to be included. If the usage patterns of both the products differ, then the consumers’ use & waste management needs are to be looked into. Thus for this comparative analysis, the analyst would have to inventory the entire life cycle of the two products.Here, one of the soaps is solid and the other is liquid, each with different densities and cleansing abilities per unit amount. It would not make sense to compare them based on equal weights or volumes. Thus, an acceptable basis for comparison might be equal numbers of hand washings. Because these two products may be used at different rates, it would be important to find data that give an equivalent use ratio. For example, x amount of bar soap and 2x amount of liquid soap are used per hand-washing. Thus, the equivalent use ratio is 1:2 which would be used for the comparative analysis.Because the two soap product types are packaged in different quantities and materials, the analyst would therefore, need to include packaging in the system. Contributions of extra ingredients, such as perfumes, moisturizers etc. might also be considered. Moreover, if market studies indicate that consumers purchase the product in preference to an

identical product without a moisturizer, or if they subsequently use a moisturizing lotion after using a non-moisturizing soap, then equivalent use would entail including the separate moisturizing lotion.

Conclusion:Thus, it is clear that application of LCA study helps the manager(s) realise the implications of their operations in a comprehensive manner. However, since performing an LCA study requires defining the boundaries of the system as per the requirements specific to the organisation, standards need to be set in order to make use of the LCA application in a more widespread manner. Suppose, two companies A and B produce a competitive product say, paper. It is possible that the operations at Company A are better and less damaging to the environment than that of Company B, but Company B may be able to report better numbers in terms of its impact on the environment as compared to company A, because it may not have included certain sub-systems in the analysis, which A had included. Therefore, it is required that regulatory measures be taken by the government in terms of LCA studies to enable the industries apply the concept effectively and achieve Sustainable Operations Management.

References:1. http://www.unep.fr/shared/publications/cdrom/DTIx0889xPA/UNEP%20SETAC%20Life%20Cycle%20Initiative/Other%20publications/UNEP_Background_document_LCM_2006_Febr.pdf2. http://opim.wharton.upenn.edu/risk/downloads/06-04-PK.pdf3. “SAIC” May 2006, Life Cycle Assessment: Principles And Practice By Scientific Applications International Corporation (SAIC) 11251 Roger Bacon Drive Reston, VA 20190

__________________________________


38

Reverse Logistics of Hazardous Automobile Waste

AbstractSimply defined, Reverse Logistics is the process of return from the consumer. For example, when a customer returns a recently bought damaged shirt, reverse logistics processing commence. Reverse logistics is increasingly becoming an area of focus owing to the tremendous volumes of E-waste, used vehicles, batteries, etc… that are being generated, and which need to be disposed/re-used properly in order to contain the environmental impact. This article looks at how reverse logistics is applied in the handling of two major hazardous automobile wastes - Car Batteries and Used Engine Oil, as well as understand how certain commonalities between the battery recycling and used oil re-refining industries can be exploited for sustainable and competitive advantage.

What is Reverse Logistics?

As defined by Reverse Logistics magazine, Reverse Logistics or Aftermarket Logistics or Retrogistics, or Aftermarket Supply Chain is the process of planning, implementing, and controlling

the efficient, cost effective flow of raw materials, in-process inventory,

finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.1 Simply defined,

this is basically a process of return of goods from consumers.

The returned products can be broadly classified into three categories as displayed below 2:

1. Manufacturing Returns: These include any factory excess such as

raw materials as well as products / components that may be defective. In

addition, they could be by-products of current manufacturing process. E.g. Fly ash from burning coal.

2. Distribution Returns: These include products that may have been outdated, defective, discontinued or need to be replaced by newer versions.3. Customer Returns: These include products that may not meet customer’s demands, product defective on delivery, products that need replacement, and end-of-lease returns.Typical steps that are followed in a reverse logistics system are3 :1. Gatekeeping: This is the process of deciding whether a product should be allowed into the reverse logistics system. If a product is going to be thrown away (non-recyclable or non-repairable) then it is important to identify that early in the process, so as to avoid incurring wasted costs for the entire supply chain. Efficient gatekeeping can thus significantly save costs incurred by the value chain.2. Collection: This is the process of assembling the products for the reverse logistics system. The products can be collected in a centralized or

decentralized retail location.3. Sortation: This process is where the best channel for disposing the product is decided, so as to generate maximum revenues. If the collection is centralized then the system benefits from economies of scale. In case of a decentralized collection system, the volumes are much smaller, scattered and generate lower revenues. Due to the low volumes in a decentralized system, the recycling process may not have enough scale to use the most advanced solutions.4. Disposition: This is the final step where the products are sent to their selected destinations. With larger volumes in a centralized location, the seller will have a higher bargaining power in the secondary markets to command better prices.In this paper, we focus on the return of the hazardous wastes generated by the automobile industry, specifically Batteries and Used Engine Oil.

Authors Agnel Joseph & Alok Gangaramany, EPGP, Indian Institute of Management Bangalore


39

Due to shortage of lead, recycling of used batteries for recovery of lead is being undertaken by both the organized and unorganized sectors of the country. The diagram below depicts the reverse flow of battery scrap.4 Consumers typically return the batteries at their local workshops or dealers, or else recondition them after a period of use. The replacement market can be categorized into trade and non-trade segments. The non-trade segment represents the Government departments / undertakings and institutional buyers, who generally liaise with the organized smelters. The dealers/ service centers have the option to sell the battery scrap to either the trader which may be routed to the unorganized smelters or the non-traders that route this scrap into the organized market. The traders typically pay a higher price and give better margins to the dealers as a result of which the unorganized sector is much bigger (over 80% approximately).

Car Battery Reverse Logistics ProcessMajor challenges facing the battery recycling industrya) Collection and return of battery scrap is the biggest challenge in the chain. The fragmented nature of the recycling industry makes it difficult to complete the reverse value chain in the process, something more pronounced in non-major cities since the recycling service providers are generally located closer to metros. b) Automobile dealers prefer selling battery scrap in the unorganized market due to higher trading margins than those offered in the sustainable organized markets.c) Safety is a critical concern, especially in the unorganized sector. The unsafe, rudimentary practices of lead extraction and smelting leads to lead poisoning which can affect vital organs, cause blood disorders and are sometimes fatal.

Used oil is allegedly one of the major hazardous materials in the world, including India. Used motor oil picks up metals (including toxic metals), particulates, chemicals, etc…during engine operation. These, along with the special additives that are added to improve lube oil performance, create greater environmental damage that virgin crude. Disposal is a major concern facing industry and society, with typical methods including pouring onto the ground, dumping into trash and even pouring directly into waterways, which can cause substantial ecological damage.But this need not be how the lifecycle of used oil ends. The very property of lubricating oil that makes it a pollutant – “its difficulty to be destroyed”, can in fact be effectively used to restore it for re-use. Once used oil is uplifted from collection points such as service stations, workshops, recycling depots and factory sites, it can be transported to re-refineries where it would go through the following steps :1. Dehydration – Heat the oil at 1200C to boil off emulsified water and fuel diluents.2. Diesel stripping – Feed the dehydrated oil into a

Used Oil Re-refining Processvacuum distillation plant for fractionation into lighter fuel and diesel, followed by the lubricating oil and finally non-distillable residues such as carbon, wear metals, degraded additives etc.3. Lube oil distillation and condensation – Pass the lubricating oil faction through an extraction tower to remove all unwanted aromatic components and color. Finally add any appropriate additives to reuse the reclaimed oil.

Major challenges facing the Re-Refining Industrya) Producing re-refined lube that is substantially cheaper than that produced from virgin crude. The price must match the customer’s willingness to pay, given the perception of reduced quality of recycled lube. Access to unadulterated, quality synthetic waste oil substantially reduces the processing costs for the re-refiners.b) Sourcing of input used oil in the absence of stronger governmental intervention to prevent the illegal “burning” or combustion of used oil, as well as difficulties in importing used oil.


40

Leveraging Commonalities in Reverse Logistics ProcessesAnalysis of the battery recycling industry, its reverse logistics processes and comparing against the used/ waste oil re-refining industry enables us to identify commonalities and complementariness, which can be exploited to benefit both these industries.Fundamentally, a major source of inputs to both these industries originates from the automobile sector. Consequently, the projected growth of India’s automobile industry will lead to substantial increases in quantities of both disposed batteries and used oil. Two of the important “actors” involved in the reverse logistics chains of both these industries are also common – automobile service centers and end users of vehicles, which helps in targeting efforts for collection of waste battery & used oil, regulation/enforcement by government authorities as well as conducting informational/awareness campaigns.Purely in terms of reverse logistics operations, it is in the collection activity where firms can leverage commonalities, since the subsequent recycling stages are different in both industries. A combined effort in the collection activities of used oil and batteries will allow exploiting economies of scale in activities such as establishing relationships with the authorized and unauthorized service centers to planning and periodic pick-up of batteries and used oil from even the smallest/remotest service centers. Such a consolidated effort in collection will help mitigate some of the challenges faced by both these industries, such as ensuring reliable supplies, overcoming costs of de-fragmented collection, reducing unsafe units (through increased competitiveness of organized players over the unorganized) and ensuring quality of the raw material. The used oil industry is especially reliant on quality input waste oil, where the broader relationship maintained by the collection providers with the service centers will incentivize these centers not to adulterate the oil, in order to prevent jeopardizing a long standing relationship. A combined collection effort will also incentivize 3rd party logistics providers to undertake such services, given the economies of scale possible.Finally, if the recycling units are co-located or near located, firms can employ common end stage safe disposal, where the scale can compensate for the use of better, expensive technologies and techniques.

Way ForwardSeveral of the critical challenges faced by both Battery Recycling and Used Oil Re-refining industries within the organized sector can be addressed by having a sound reverse logistics strategy. This strategy should include regional strategies as well as consider involving third party logistics providers, who can leverage economies of scale (from multiple clients) as well as reduced shipping costs. Moreover, by having regional level strategies, the non-metro cities can also be handled using processes similar to those used in the forward supply chains. Apart from the collection issues, we also need to look at the recycling plants.

It is crucial that these plants are established using superior technologies that may be more expensive, which in turn means they should be able to leverage scale in order to be economically feasible. In order to further improve the ecosystem of the organized units, the government needs to play a more active role through better regulations enforcement, providing start-up subsidies and technology sharing. A centralized effort is required to collect the data on the compliances of the battery companies, service centers, dealers, etc… as well as the recycling units, with stricter imposition of penalties for those who fail to meet the regulatory requirements. It is after all in the interest of the society to promote the fledgling organized battery recycling and used oil re-refining industries that complete a sustainable reverse logistics chain.

References [1]http://www.rlmagazine.com/edition01p12.php

[2]http://www.autoidlabs.org.uk/presentations/AKSupplyChainForum.pdf

[3]Going Backwards: Reverse Logistics Trends and Practices, Rogers & Tibben-Lembke

[4]Adapted from “Recent Indian Policy Initiatives in Lead Battery Scrap Management and their Impact on the domestic Demand-Supply Gap of Lead” by Dr. V. Rajagopalan

[5]The Re-refining of used lubricating oils, by J. Buckland and G. Vincent

___________________________________


41

Supply Chains in Disaster Management An Indian Perspective

Disasters have affected the human civilization for ages. Although there have been many attempts to mitigate the destruction caused by

them, the number of casualties and loss of property during disasters still remain a concern for many developed and developing economies. Disasters are not only a hindrance to the development of any economy but they also leave trails of tragedy, both mental and physical. The economic impact of disaster is immense. It disrupts the regular business activities in the region, affects future investments by changing investor’s mind-set and results in capital outflow as more and more investors pull out their investments. Also huge investment is required in restoring normalcy in the region. Managing disasters efficiently and being prepared for them are thus essential for any nation. The basis of disaster management lies in mitigating the disaster by training people, taking quick action during the disaster and ensuring a fast recovery. All these are part of different phases in a disaster management plan which comprises of a Pre-disaster phase, disaster phase and a post-disaster phase. Each stage requires different kind of planning and responsiveness. Some of the supply chain decisions in disaster management include- • Logistics – how to reach the site• Required Manpower– mobilizing and deploying them at the disaster site• Flow of information – communication of the developments during the disaster• Evacuation plan – how to evacuate the people in less time• Supply of food and other resources

Priority Based Supply Chain ModelThe proposed SCM model focuses on a distributed and a highly integrated system to meet the requirements of the preparedness, mitigation, response and recovery phases. The model caters to various stages of a supply chain i.e. planning, sourcing, storage/processing and delivery in various disaster scenarios. There is a gradient of the planning scope and horizon (strategic to operational planning) while moving from the planning to the delivery stage. At lower level of planning, it includes the finer details and adaptive measures branching out based upon the type of disaster. The prioritisation of activities has been done on the basis of a heat map based matrix. The different colour codings signify various levels of priorities attached with the respective tasks.

The priorities were established based on the literature review and secondary research as to what local bodies consider high priority while designing mitigation plans.Supply Chain Functions:Planning: Distributed supply chain model design with location finalisation. Delivery planning with efficient inventory management is a necessary ingredient. Sourcing: There is need for establishing ties with multiple vendors (facilitated via the IT backbone, discussed later). Additionally, its involvement with the defence services will be beneficial.Storage/Processing: Warehouse network design in tandem with the utilisation of the existing public framework e.g. FCI warehouses, hospitals etc. fall in the ambit of this function. Delivery: The focus must lie on the high utilisation of the available network and infrastructure. Through increased information points (kiosks, terminals etc.) in remote locations, the delivery of information must be ensured. Enablers:In the background, the model draws heavily from five major enablers, i.e. Information Technology backbone: The IT backbone can be administered as a web hosted multipoint entry portal for vendors, victims, officials, logistics partners etc. Human Resource Development: It is very important to build a pool of quickly deployable disaster management force borrowing from civilians, defence services, police, NGOs, NCC etc. Knowledge and Skills development: Creation and periodic updation of a diverse knowledge pool is important to feed the IT backbone and the human resource development. E.g. - detailed contact list of emergency service centres, vulnerability index, hazard profiling.Finance: Appropriate fund allocation from the government and gathering fund in the form of aids, domestically and abroad. It assumes greater importance in the recovery/rehabilitation phase. The IT backbone must provide for easy donation procedures.Procedural/Legal setup: The Disaster Management Act, 2005 has streamlined the organization of disaster management at central government level and also delegated to the state government level.

Authors Abhishek Anand & Amit MirchandaniPGP 2010 - 2012, Indian Institute of Management Lucknow


42

Planning Sourcing Storage /

Processing Delivery

Pre-Disaster

• Distributed disaster recovery cell location planning

• Delivery Planning

• Categorization of Essential & non-essential goods

• Setting up new facilities • Integrated warehousing

with IT backbone

• Transport network planning for quick response

• Optimized delivery schedule

• Vulnerability estimation • Disaster Profiling • Emergency rescue kits • Centralized IT

backbone

• Ensuring high availability of information points

Disaster • Early warning system

and mobilisation • Evacuation plan

• Strengthening media outreach in remote areas

• Enhancing Communication network

• Proper utilisation of established networks

Post-Disaster

• Water & medical facilities planning

• Epidemic mitigation

• Readiness planning of Govt. depts. for food (FCI)/ Water / Housing

• Efficient management of donations/aids received

• Strengthening Public distribution system

• Leveraging the UIDAI project

• Exit Strategy – when the disaster relief operations have to stop

• Deployment of NGOs/ independent bodies for awareness creation

• Reconstruction and rehabilitation completion

• Ensure fast delivery of shelter and rehabilitation

High Priority Medium Priority Low Priority

Enab

lers

Information Technology

Human Resource Development

Knowledge and Skills Finance Procedural/Legal

• National portal & information backbone

• Vendor/Suppliers Data

• Logistics provider data

• Transportation network data

• Civilian Database (UIDAI Project)

• Training of trainers (Preparedness Phase)

• Training of people • Disaster Management

Teams at Panchayat, Block, District levels

• Planning the availability of skilled professionals for deployment when needed

• Awareness Campaigns

• Early Warning System

• Manuals & Standard Operating guidelines

• Inputs from the meteorological and intelligence wings (natural & technological disasters)

• Monitoring of funds • Tracking of expenses • Domestic fund raising • Raising Foreign Aid • Financial Planning for

affected region ( In Recovery phase)

• Fund disbursement process

• Establishing proper roles/responsibility, jurisdiction & hierarchy of command

• Legislations at Central/State levels to enable quick action and financial allocations

High Priority Medium Priority Low Priority

Fig.1 Priority based Supply Chain Model


43

India – opportunities and challengesIndia has been witness to many natural disasters given its vast territory, large population and unique geo-climatic conditions. Whereas the problem of mass land movements continue to affect the hilly regions of northern India, the escalation of terrorism and internal separatist activities have compounded the damages due to man-made disasters. In terms of an integrated backbone to fight disasters, India Disaster Resource Network has been incorporated. IDRN is a nation-wide electronic inventory of resources that enlists equipment and human resources, collated from district, state and national level Government line departments and agencies.

ConclusionEffective disaster management is the key to the development of any economy. The proposed priority based model would come in handy while devising strategies for an effective supply chain management during a disaster. It calls for a unified and committed effort from the Government as well as the community to ensure that disasters don’t leave behind trails of tragedy.

ReferencesCavallo E., and I. Noy. 2009. “The Economics of Natural Disasters: A Survey.” IDB Working Paper 124. Washington, DC, United States: Inter-American Development BankCavallo E., Powell A. and Becerra O. “Estimating the

Direct Economic Damage of the Earthquake in Haiti.” IDB Working Paper 163. Washington, DC, United States: Inter-American Development Bank“Introduction to International Disaster Management”, Damon P. Coppola, ISBN 0-7506-7982-4“Disaster Administration and Management”, S.L. Goel, ISBN 978-81-8450-033-2http://www.ndmindia.nic.in/h t t p : / / w w w. r e s p o n s e n e t . o r g / s h o w. d e t a i l .asp?id=2168http://as.wiley.com/WileyCDA/Section/id-397133.htmlhttp://www.unisdr.org/http://www.emdat.be/ (erstwhile www.em-dat.net)Craighead Christopher W., Blackhurst Jennifer, Rungtusanatham M. Johnny, Handfield Robert B. (2007), “The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities”, Decision Sciences Journal, 38, 131-156Knemeyer, Michael A., Zinn, Walter, Eroglu, Cuneyt (2009), “Proactive planning for catastrophic events in supply chains”, Journal of Operations Management, 27, 141-153Van Wassenhove, L.N. (2006), “Humanitarian aid logistics: supply chain management in high gear”, Journal of the Operational Research Society, 57, 475–489Paul R. Kleindorfer, Germaine H. Saad (2005), “Managing Disruption Risks in Supply Chains”, Journal of the Production and Operations Management Society

____________________________________

Fig. 2 Earthquake Vulnerability Map of India

GENERAL

O P S W O R L D G E N E R A L

45

Barriers to Lean supply Chain in IndiaPerspective of an Indian Automobile OEM

A supply chain can be defined as a system of organizations, people, processes or activities that are involved in moving a product or service from the suppliers to

the end customers. In the case of an OEM, the supply chain originates at suppliers or sub-suppliers, and terminates at the final buyer. In the entire length of this chain, there exist various avenues for wastage and occurrence of non-value-adding activities, due to a variety of reasons, both internal and external to the company. A lean supply chain defines how a well-designed supply chain should carry out its operation by minimizing wastes and delivering the products in minimum time to the end customer. Researchers have tried to identify a common framework for the implementation of lean supply chain, but there exist a lot

of different versions. However, most researchers agree to the following set of parameters that one should consider when implementing lean supply chain:This article highlights the barriers against implementation of lean supply chain in Indian conditions, from the perspective of an automobile OEM. This firm had settled for around 290 suppliers for different parts that it required for production. Each supplier had on an average, 5-6 tier of sub-suppliers. The suppliers were chosen mainly from India and were dispersed geographically. 44% of the suppliers were located in southern parts of the India, whereas 50% were located in northern

Lean Concepts Requirements Requirements

Continuous Improvement

Design to Manage Demand Volatility Change Management implementation

Assess where standardization is feasible and to what level

Utilize advancement in Technology(IT, RFID etc)

Multi-discipline team for project Assess the impact of international sourcing

Single point-of-contact for a supplier Milk-Run system for suppliers

Develop Systems Thinking

Systemic view for whole supply chain Understand Customer Value

Create and Asses Value Stream Eliminate Redundancy

Establish strong relationship with suppliers

Create and Develop Sole Suppliers Remove the obstacles to the free flow of information

Low-tier of suppliers Create Flow

Benchmark Best Practices

Create Performance Metrics (Based on Quality, Reliability and Cost)

parts of India ; the rest were from Korea and Japan. For transportation, the firm implemented different systems depending on the location of the suppliers. The firm followed hub-and-spoke mode and established two hubs across India, one at Bangalore and another at Delhi. The Delhi hub handled north Indian suppliers , while Bangalore handled south Indian suppliers who were located far from the manufacturing base (Chennai). For local suppliers within Chennai and nearby, they maintained a milk-run system.The Motion Waste: One of the major problems for implementation of lean supply chain is the size of

the sub-supplier and its management practices. Sub suppliers in India are small in size, lack infrastructure, quality human resources and are not professionally managed (many are family-run businesses). This results in inadequate management of operations and high degrees of bureaucracy, and restricts them from having state-of-the-art machines and requisite facilities. Due to lack of these, a job may often move to-and-fro , multiple times, between a sub-supplier and a sub-sub supplier.

Author Prasoon MazumdarCo-ordinator, OMEGA-Operations Interest Group, Indian Institute of Management Kozhikode

O P S W O R L DG E N E R A L

46

In this OEM’s case , this factor increased the lead time of the process significantly along with costs associated with transportation and waiting time.

The Transportation Waste: Many states in India have their own transit taxes and regulations for inter-state logistics. Lean supply chain requires a fairly stable logistics system. Irregular transit barriers at different state borders make it difficult to determine the lead time, and involve unusual supervision and tracking costs.

Standardization Issues: The OEM had standardized many of the assemblies but it was yet to do that for its packaging system. Packaging and its design was left for the suppliers and hence there was no standard packaging system across their supply chain. A standardized packaging system can help firms reduce transportation costs and point-of-use storage in the manufacturing.

Redundancy in the System: The firm adopted postponement strategy which was evident in the process of designing , but not in their supply chain. Most of the designs of parts for different variants and product families were already standardized , but the firm had different suppliers for them. Not only did this increase redundancy of the system, but it also added extra transaction, transportation and other costs in the supply chain. This violated the req requirements of the lean supply chain of a sole supplier , and added ambiguity and extra transaction cost in the supply chain.

Management Issues: A Lean Supply Chain Management should have a single point-of-contact for individual suppliers. But the firm’s suppliers had multiple points-of-contact for different requirements in departments like logistics, procurement and supply chain. The whole process was missing the systemic perspective and departments were working according to their priority and convenience. This kind of system creates ambiguity in whole supply chain and disrupts the flow. There had been incidences where the information provided by procurement team to a supplier was not known to others.

Systemic View and Traversal of Lean Concepts: The firm did put a lot of emphasis on development of suppliers and hence most of the suppliers selected as Tier-1 suppliers were either ISO or TS certified suppliers. But the same was not true for the whole supply chain as many of the sub-suppliers were not ISO or TS certified. This was pertaining to the small size of the sub-suppliers and requirement of huge cost for getting such certification. The firm was mostly concerned with the activities of the Tier-1 supplier and the management only dealt with Tier-1 supplier, whereas the management of sub-suppliers were either neglected or left in the hands of Tier-1 suppliers. The On-Site Assessment (OSA) and Supplier Risk Assessment (SRA) were mostly done for the Tier-1 suppliers and sub-suppliers were mostly ignored in such process and the responsibility of such activities for sub-suppliers was given to the Tier-1 suppliers. This kind of system completely

missed the systemic view of the supply chain and ignored the traversal of lean concepts across supply chain.The traversal of the lean concepts across the supply chain was also disrupted by the IPR systems. Many of the suppliers have proprietary parts whose designs were created by the suppliers and the production of such parts was also with the suppliers. Sub-supplier development was also with the suppliers, and the firm had no information about the system prevailing for such parts.

IT Issues: Lean Implementation in the current scenario requires implementation of IT Systems for tracking the whole supply chain, but this kind of arrangement is currently missing in the Indian conditions more often than not. This makes tracking of whole supply chain cumbersome as the records related to the same are still maintained in paper format in registers, which makes it quite difficult to track. This system of administration is way old in Indian scenario and requires a change for successful implementation of lean supply chain where company can place data in portals and the demand can be gauged by suppliers. There is need for a single platform for OEM and the suppliers to interact, which is currently missing leading to higher amount of waste and disruption of information flow along the supply chain.

Most of the Tier-1 suppliers of the firm had IT systems implemented in their

respective firms. But since the size of sub-suppliers

was small and implementation of IT system required extra cost and change in the way of working, many small sub-suppliers became reluctant to implementation of the IT system across the supply chain. This disrupted the effort of the OEM to have a sound and continuous information flow system. One of the other reasons was the reluctant behavior of the internal employees of OEM towards adapting to IT systems.

Behavioural Issues: The success of lean supply chain implementation depends much on behavioural aspects . This was eminent in the supply chain of the firm as suppliers denied direct commitment or acceptance of mistakes. This lack of trust and commitment resulted in blame game and distributed responsibilities disproportionately among suppliers, which hindered the implementation of corrective measures in the whole supply chain.

“...Lean supply chain requires a fairly stable logistics system. Irregular transit barriers at different

state borders make it difficult to determine the lead time, and involve unusual supervision and tracking costs...”


47

A mind map (Fig.1) can depict the barriers more easily and provide a consolidated view of the barriers currently faced by the firm in Indian conditions.

__________________________________________________


48

Unique Challenges in Humanitarian Logistics

Abstract: The article starts with a description of the Disaster Profile of India and emphasises the need for research in the field of Humanitarian Logistics keeping in mind India’s risk profile. The article brings out the challenges that need to be addressed while undertaking humanitarian logistics.

Disaster Profile of IndiaIndia’s physical location in the subcontinent makes it susceptible to natural disasters like Earthquakes, Famine, Drought, Wind Storms, Floods etc. and man-made disasters like Terrorist Attack, Chemical Leak, Industrial Explosions, Fires, Train and Road Accidents and Refugee Crisis etc. According to a report by World Health Organisation (WHO), almost 57% of India’s land is vulnerable to earthquake (high seismic zones III-V), 68% to Drought, 8% to cyclones and 12% to Floods. About 30 million people are affected annually by Floods and Droughts!!In such a scenario, it is needless to emphasise the importance of Humanitarian Logistics.

What is Humanitarian Logistics?

The Fritz Institute of San Francisco has defined humanitarian logistics as the process of planning, implementing and controlling the efficient, cost-

effective flow and storage of goods and materials, as well as related information, from the point of origin to the point of consumption for the purpose of alleviating the suffering of vulnerable people. The function encompasses a range of activities, including preparedness, planning, procurement, transport, warehousing, tracking and tracing, and customs clearance.The different operations can be distinguished in the preparation phase (before a disaster strikes), immediate response phase (instantly after a disaster) and reconstruction phase (aftermath of a disaster).An old adage, “Prevention is better than Cure” is apt here. Preparation in advance to avert and respond to a disaster is much better than responding to it without preparation. In fact, according to a USA report, “On average a dollar spent by FEMA (Federal Emergency Management Agency) on hazard mitigation (actions to reduce disaster losses) provides the nation about $4 in future benefits”. Similarly, according to the then UN Under-Secretary for Humanitarian Affairs (Jan Egeland): “In Niger in 2005, it would have cost $1 a day to prevent malnutrition among the children if the world had responded immediately. By July 2005, it was costing $80/day to save a malnourished child’s life.”The above facts in addition to the dearth of existing research in the field and lack of public awareness and appreciation on the need for disaster preparedness

present a strong case for researchers and academicians to carry out research in the field of Humanitarian Logistics. This will not only lead to cost saving at the time of a disaster, but will also lead to saving human life.

Challenges in Humanitarian LogisticsTo undertake humanitarian logistics and prepare for a disaster, let us understand the challenges that are faced in ensuring logistics at the time of a disaster:-Destabilised Infrastructure – Disasters often lead to loss of property and hence relief has to be carried out usually in absence of transport infrastructure, lack of electricity etc. Some disasters like Famine, Drought occur in underdeveloped regions where there is already a lack of proper infrastructure. Besides, the underdeveloped regions are the ones that suffer more in case of disasters like earthquakes, hurricanes due to inadequate construction requirements. The problem is aggravated when hospitals and relief camps are destroyed during the disaster. Unavailability of proper Infrastructure hinders the relief operations.Unpredictable Demand – It is caused due to unpredictable nature of disasters. Several simulation techniques have been developed that create realistic disaster scenarios but they assume that demand is known. When demand becomes unpredictable, such techniques are not as effective. Use of IT can become useful here in getting and sharing accurate information to create a realistic disaster scenario and respond accordingly. Unpredictable demand is also due to difference in cultural preferences.Unpredictable Supply –Goods commonly needed in disaster relief are water, medication, chlorination tablets, tents, blankets and protein biscuits. Location and commitment of suppliers is unknown. Suppliers are limited and sometimes we have to also deal with unwanted suppliers. At times, it is even unknown which resources are available. Maintaining good relationship with suppliers of these goods hence becomes important. Many a times, suppliers have to look beyond their profit making objective because customers are not generating a voluntary demand which will hopefully not be repeated. Many times, aid agencies receive unwanted supplies like expired medicines, inappropriate clothes (that are not suited to the climate) etc. This leads to the problem of clogging airports, warehouses etc. Problem of last mile connectivity in transporting the necessary goods to disaster victims – Lack of transport infrastructure and unavailability of fuel lead to the problem of last mile connectivity. At times, Fuel shortage is caused just because fuel – storage pumps are demobilised due to shortage of electricity. This problem can however be averted by air dropping of goods. The shortage of material handling equipment is the main problem and hence one needs to ensure that the package size is such that it can be handled. Other issues include the problem of ensuring food safety and hygiene.

Author Rohit Bhagat, PGP 2010 - 2012,Indian Institute of Management Raipur


49

Also, some medicines need proper temperature control which is unavailable due to shortage of power. Many a times, the disaster hit region is affected by riots and rebel forces may hinder the transportation of goods to the needy. Looting may occur which may lead to deviation of trucks from the intended destination. Therefore, it is important to depoliticise the relief operations. Challenge lies in positioning supplies out of the reach of potential demolishing factors while at the same time close enough to the disaster so as to deliver aid quickly and effectively to the needy.Lack of Coordination – During a disaster, several agencies come to the aid of people and make efforts with their own ways of operating and structures. At times, the efforts are redundant and duplicated. Coordinating the efforts of the different agencies is an important and a challenging task. Preparation phase can be used to coordinate the efforts of the different aid agencies. Need for Quick Response – After a disaster has occurred, it is required to put in place a Supply Chain quickly even though we may have limited knowledge of the situation as high stakes are attached to the timeliness of deliveries. Delays may lead to loss of lives. Preparation and Training are often neglected – Humanitarian Logistics is often mistaken to be limited to immediate response phase and hence the preparation and reconstruction phase are often neglected. Due to lack of awareness, donors often insist that their money is used only for relief activities and is not used to fund back-office operations. After the disaster response, the reconstruction phase shouldn’t be neglected.Uniqueness of Disaster – Each Disaster is unique in its magnitude, location, warning time and impact. This problem is aggravated due to the difference in demand which results due to cultural peculiarities and languages barriers. It is difficult to replicate the experience of one agency in successful disaster management to another disaster.

ConclusionIndia’s location in the sub-continent makes it susceptible to both Human and man- made disasters. In the given scenario, it becomes all the more important for us to prepare and respond to such disasters. Humanitarian logistics brings its own set of challenges which are unique and are different from Business Logistics. In this article, we have taken a look at some of these challenges which are Destabilised Infrastructure, Unpredictable Demand, Unpredictable Supply, Problem of last mile connectivity in transporting the necessary goods to disaster victims, Lack of Coordination, Need for quick response, Preparation and Training are often neglected and uniqueness of disaster.However, a lot of research is required to be undertaken by leading practitioners and academicians in the field of humanitarian Logistics to improve our preparedness for a disaster.

References[1] Emergency and Humanitarian Action, Country Report – India, available at http://www.whoindia.org/LinkFiles/Health_Action_in_Crises_country_profile.pdf (last accessed 21/10/2011)

[2] Cassidy, W.B. (2003), “A logistics lifeline”, Traffic World, October 27, pp. 1.

[3] Gyongyi Kovacs and Karen M. Spens (2007), “Humanitarian logistics in disaster relief operations”, International Journal of Physical Distribution & Logistics Management Vol. 37 No. 2, 2007, pp. 99-114

[4] Gyongyi Kovacs and Karen M. Spens (2009), “Identifying challenges in humanitarian logistics”, International Journal of Physical Distribution & Logistics Management, Vol. 39 No. 6, 2009, pp. 506-528

[5] Jerome Chandes and Gilles Pache (2010), “Investigating humanitarian logistics issues: from operations management to strategic action”, Journal of Manufacturing Technology Management, Vol. 21 No. 3, pp. 320-340

[6] Long, D.C. and Wood, D.F. (1995), “The logistics of famine relief”, Journal of Business Logistics, Vol. 16 No. 1, pp. 213-29.

[7] MMC (2005), Natural Hazard Mitigation Saves, Vol. 1, Multihazard Mitigation Council,Washington, DC, available at: www.agiweb.org/gap/workgroup/Vol_MitigationSaves-1.pdf (accessed 20 May 2010) , pp. iii.

[8] Meikle, A. and Rubin, V. (2008), Living on the Edge of Emergency, CARE International, London, available at: www. careinternational.org.uk/lote/resources/Living-on-the-Edge-Paying-the-price-of-inaction.pdf (last accessed 25 October 2011), pp. 4.

[9] Murray, S. (2005), “How to deliver on the promises: supply chain logistics: humanitarian agencies are learning lessons from business in bringing essential supplies to regions hit by the tsunami”, Financial Times, January 7, p. 9.

[10] Thomas, A. and Kopczak, L. (2005), From Logistics to Supply Chain Management: The Path Forward in the Humanitarian Sector, Fritz Institute, San Francisco, CA.

____________________________________


50

Impact of GST on Supply Chain Industry

According to the concepts of the operations, the design of distribution network for a logistics company is a network design problem. That network has to be

optimized to meet the demand at different nodes of the network for the given distance between the nodes, cost of goods transfer in the pipeline and cost of warehousing. But, in India, historically, the supply chain or logistics of any organizations are driven by tax considerations rather than the operational efficiency. Introduction of Goods and Services Tax (GST) will change the situation and the logistics industry is expected to go through a major transformation providing opportunities for new players and new business models.

Current scenarioThe current tax structure is quite complex - there are central level taxes in form of excise, customs duty and Central Sales Tax (CST@4%), and then there are varying state level taxes in form of VAT and other levies like cess etc. The problem is that, state level taxes are applicable on top of central taxes which mean the supplier is paying taxes on taxes. Tax structure has created an interesting exemption from central tax if there is a stock transfer between the states where as, any inter state sale is taxable. For example, an organization having warehouses in two different states can transfer the stock between the two warehouses without paying CST and get away by paying only state taxes after selling the goods in that state. But any sale between the two states will be taxable under CST and state taxes are applied over the CST. Now, the only way to avoid this double taxation is to create warehouses in every state and perform stock transfer between inventory stocking points. Hence, most industries - like manufacturing, FMCG and third party logistics players - generally have warehouses/offices in each state to reduce tax burden of Central Service Tax (CST). Thus, distribution network planning is more driven by logic of saving taxes, rather than achieving operational efficiency.

The network planning is divided into two stages where you first decide whether to have a warehouse in that state or not and if yes, then decide where to setup the warehouse in the state. The decision of whether to have a warehouse in a particular state or not is simply a trade off between the CST incurred if there is no warehouse and inventory costs incurred if there is a warehouse. Both the tax payable and the inventory costs are driven by the demand in that particular state. As shown in the figure, only if the total demand in the state is greater than d*, it is profitable to setup a warehouse in that state. When the demand is less than d*, it is profitable not to have a warehouse in that state as the cost of tax is less than the inventory cost.After deciding to setup a warehouse in a state, now the decision of where to setup in that state should be addressed. As shown in the figure, majorly two strategies are followed for this problem namely, entry point strategy and centre of gravity strategy. Primary shipping cost (shipping from factory to warehouse), warehousing cost and secondary shipping cost (shipping from warehouse to retailer) are the decision variables here. The total weighted average cost of shipping (demand at retailers are the weights) determines the strategy to be followed. Entry point strategy is profitable if the secondary shipping cost is less than primary shipping cost and centre of gravity is profitable if secondary shipping cost is more than primary shipping cost.

With 28 states and 7 union territories in India, it accounts to 25-40 small warehouses (depending on trade off explained above and scale of operations) instead of 6-8 large warehouses which would be needed for geography of this size. For some manufacturers with countrywide operations, the warehouses are as high as 55 – 60 in number.

Introduction to GSTFrom the newly proposed tax structure (GST) which treats goods and services alike, only the inputs that affect supply chain are reproduced here. GST is a comprehensive value added tax on goods and services where the tax is levied on ‘value added’ at each stage of supply chain and provides seamless input tax credit throughout the supply chain. GST does not distinguish between goods and services and the tax is collected at the point of consumption.

Authors P. Babu Ravi Kumar & Ajay MiryalaPGP 2010 - 12, Indian Institute of Management Ahmedabad


51

Same taxable value base for computing Central and State GST hence no cascading impact of tax. There is no cascading effect of tax on cost under GST and the tax incidence is fully transparent. Hence the present taxable events such as “Manufacture” in case of Central Excise and “Sale” in case of VAT or CST will lose relevance.

Changes in supply chain due to GSTUnder the tax structure proposed by GST, the tax is levied only at the point of sale irrespective of whether it is inter-state sale or intra-state and both the state and central taxes are collected on the same base. The final tax on a product would be the same, irrespective of the structure or location of its production, procurement of inputs and the nature and complexity of the distribution chain. This primarily eliminates the need for having warehouses in different states. Hence the supply chain would be undergoing a drastic shift towards re-aligning/merging the smaller warehouses to most productive and logical locations - without having to think of tax burden.With GST, the decision of where to setup the warehouse will be guided by the distance between the manufacturing unit & demand centres, service levels to be satisfied, primary shipping costs, warehouse costs and secondary shipping costs.As shown in the below figure, the primary shipping cost is the cost of shipping goods from manufacturing unit to the warehouse where the secondary shipping cost is the cost of shipping from warehouse to the retailer.

Distribution network should be designed in such a way that, the sum of primary shipping cost, inventory cost and secondary shipping cost should not exceed direct shipping cost from supplier to retailer. If a warehouse is shipping to multiple retailers, then the weighted average cost at that warehouse should be minimized to get the optimum distribution network. In general, the primary shipping cost per unit is less than the secondary shipping cost per unit because of the good quality of road transport infrastructure between cities and the economies of scale. In general, there should be a warehouse within 600Kms of any demand centre (city) to meet the service level of delivery within two days of order (industry norm).Impact of GSTGST would force the suppliers to optimize the supply chain and gain cost advantage. The optimization would impact many areas and few of them are discussed here. Cost reduction: Due to the optimization of distribution network, the overall shipping cost of the product would be reduced and the profit margins of the supplier would increase. Some part of these cost reductions will be passed on to the customers and there by impacting the demand for the product.

Automation: In addition to the inefficiency of the existing distribution network, Indian logistics industry is highly fragmented resulting in extreme competition and low margins. Due to the small size, using any ERP solutions for effective demand prediction would be costly affair. Hence, most of the small & medium businesses have stayed away from technology implementations. This impact of inefficiency and cost burden is passed to end consumer, either in terms of quality; Service-level agreement or in terms of cost. With GST, the number of warehouses will be reduced and the suppliers would be able to think of using automation which will deliver efficient operations and cost benefits.

Service levels: In the distribution network, service levels will be specified in terms of number of days required to deliver an order. Generally accepted norm is 2 days and to meet this service level, warehouses are ensured to be within 600Kms of distance from demand centres. Before the introduction of GST, a demand centre very remote in a state ‘A’ which is not within the acceptable distance to meet the service level could not be served in time by the warehouse in state A(see the figure). Because of CST, that particular city cannot be served by the warehouse in state ‘B’ even though it is very near. This leads to sacrificing the service levels at some places. With GST, this problem can be resolved and that remote city can be served by warehouse in the adjacent state and meet the service levels. Overall, introduction of GST would impact the supply chain industry in a positive way and the organizations which change themselves to the new structure very quickly will have competitive advantage. Especially this is a major opportunity for 3PL firms to gain early market and establish themselves.

References:1. Learning’s from the class of “Logistics Management” on 25-10-2011, an elective by Prof G. Raghuram, Public systems group, IIM Ahmedabad2. h t t p : / / w w w . i n f o s y s b l o g s . c o m /logistics/2010/11/gst_impact_on_logistics_indust.html

___________________________________


52

ICT and Supply Chain Practices in PDS (Chhattisgarh)

Paddy procurement and Public Distribution System are old schemes with complaints of large diversion and leakage. Monitoring of the scheme is

difficult partly due to the insufficiency of staff and partly due to their complicity. Various innovative methods of reducing leakages and diversion have been tried in the country including bar-coded food coupons, food stamps, biometrically coded ration cards etc. None of these have been entirely successful. This project which is an end to end solution based on information technology, developed and implemented in Chhattisgarh is giving very encouraging results. There are examples of innovative use of ICT (Information and Communication Technology) and Supply chain practices adapted in the projects, which are described below.

Adopting Motor Cycle Riders for data transmission: Primary Agricultural Cooperative Societies (PACS) are generally in remote locations where internet connectivity is not available. An interesting innovation has ensured data transmission on a daily basis to the central server. V-Sat based internet connectivity is available in Chhattisgarh at block headquarters in the office. Motorcycle riders have been hired to bring data everyday from procurement center computers to block headquarters, where they upload the data on the central server through the internet. Similarly any new version of software or other information is downloaded from the server at the block level by these motorcycle riders, and carried to the procurement centers. This innovation has resulted in having near real time data without having internet connectivity.

Truck Dispatch Information to Citizens through SMS:Citizen interface web-site provides a method of citizen participation in monitoring of PDS. Citizens can register their mobile numbers on this web-site for participation in the monitoring of PDS by selecting one or more FPS. Whenever PDS commodities are dispatched to an FPS from the warehouse, an SMS is sent to all the mobile numbers registered for that FPS. This message has the truck number, the quantities of PDS commodities being sent by that truck, and the date and time of dispatch. This improved transparency . SMS Sample: Shop 441001073/SHANKAR NAGAR, Truck

CG056369, Rice 26qtl, Wheat: 0 qtl, Sugar:0 qtl, Salt:0qtl, Date:01June 11

Chawal Utsav (Rice Festival):

The government of Chhattisgarh has marked 7th day of every month as the Chawal Utsav (Rice Festival). The officers of the Chhattisgarh State Civil Supplies Corporation (CGSCS) have to ensure that the food grains reach the FPS at least one day before. The beneficiaries get the intimation through the Short Message Service (SMS). The ration is carried in special yellow colored truck of the department. This vehicle is welcomed even in the notorious naxalite (armed tribal and backward people who are anti-state) affected regions. A typical Chawal Utsav is a very special day for people specially the rural people. It is as good as any other festival. Elderly men, women, children and young boys and girls can be seen gathered at the FPSs. A small village haat ( temporary market) can be seen at some of the places. People also carry out shopping on the day. The government also exploits the day to implement other welfare activities. Polio vaccinations are given on the day. Other benefits to BPL families like old age pension etc. are also distributed on this day along with PDS commodities. The day also contributes to maximum crowd at the Village Anganwadi Kendra (Health Centers).

Truck photograph to server with latitude and longitude of truck position: An application in J2ME has been developed and loaded in a GPS enabled mobile phone with camera to be used at warehouse. When a truck with rice and other commodities reaches the warehouse for delivery, the truck is photographed using the application and sent to the server. The truck and receiver’s photograph along with latitude and longitude reaches the server. Server side program compares the latitude and longitude of truck with latitude and longitude of the warehouse to ensure that the truck is in the warehouse premises by the said date and time. The application also helps in real time tracking of trucks. This innovation is helping to check claims made by receiving centers without actually receiving the truck dispatched to a certain extent.

Authors Aditya Kumar Konathala & Amit Sharan SinghPGP 2010 - 12, Indian Institute of Management Raipur


53

Outcomes / Changes: Time gap in giving cheques as payment for the paddy procured from farmers is reduced to one day from 3 to 6 days delay in earlier years. During Kharif season 2007-08 (Kharif season in general refers to monsoon season. Kharif crops are usually sown with the beginning of the first rains in June-July, during the south-west monsoon season.The month from June to November is generally termed as Kharif season in India. ), cheques are generated through computers on cheque roles and the generation of cheques was instant. Nearly 7.8 lakh farmers were benefited during the season by receiving computer generated cheques.

Centralized miller data base and uniform procedures: Computerized millers registration was introduced in to check execution of agreement with fake millers. Giving permission for milling, execution of agreement and generating delivery orders are done through web based application. Web application led to micromanagement of inventory, resulting in quicker milling, less damage to rice and paddy, and substantial savings.Automatic Calculation of monthly allotments eliminated irregularities and mal-practices in granting allotments to FPS. Now it is calculated automatically based on the number of cards in the shop. Computerized receipt and issue of PDS commodities at distribution centers resulted in effective monitoring of lifting and increased transparency. The SMS alert system, citizen interface web site is encouraging citizen participation in monitoring of PDS. Complaint monitoring system increased the speed of action on different complaints due to close monitoring. Call centre operating to accept complaints on department of food has many success stories in controlling diversion. Data is available on web in the public domain for creating transparency.

Ration Card database:About 3.7 Million ration cards have been prepared through computers in 2007-08. The data is available in a database which is a base for the computerization of PDS. The data is made accessible to public on web. Public can access the following 1. Village-wise, ward-wise or FPS-wise details individual ration card holders along with his name, father’s name and type of ration card.2. Village-wise, ward-wise number of beneficiaries. 3. Fair price shop (FPS) details: 10800 FPS details are available online.4. FPS wise allotment details: Allotment of commodities for PDS schemes are automatically calculated by the system. Allotment for other welfare schemes like mid day meal, hostels etc. are entered by District Food Controllers every month. FPS wise no. of cards and allotment of different commodities for the selected month are available online for public view. 5. Lifting details are available online: The quantity of commodities reaching FPS from Distribution Centers is known as lifting. Delays in lifting are one of the big challenges that department faces. For day to day monitoring of lifting by different districts and distribution centers, lifting details are made available online.6. Sales details of individual FPS: FPS owners are supposed to submit an affidavit every month with the details

of the sales actually made against the allotment for that month. The sales quantities are used to calculate entitlement of quantities that actually be issued to the shop, keeping into account the previous month’s balance quantities available in the shop. 7. Details of ‘RICE FESIVAL’: The details of the ration card holders benefited in the rice festival and the centers where it was celebrated are available on web.8. Details of paddy procurement: Details 0.78 million farmers that sold paddy to different societies. a. Procurement of paddy by different societies and its transport to FCI, Miller or Storage centre. b. Details of stock at storage centers. c. Payment details to farmers. d. Purchase Details. 9. Rice procurement-CMR and levy: Details of CMR and levy rice received by Chhattisgarh State Civil Supply Corporation centers. Details of registered mills, permission granted for milling and agreement executed. Complaint lodging and its status and SMS alerts whenever trucks are dispatched to FPS to registered users.

References:1. Right to Information, http://cg.nic.in/citizen/ (as accessed on May 1st 2011).2. Computerization of Paddy Procurement and Public Distribution System in Chhattisgarh by Vivek Kumar Dhand, Dinesh Kumar Srivastav, Somasekhar A.K., and Rajeev Jaiswal.3. Computerization of Paddy Procurement and Public Distribution System in Chhattisgarh 2007-08, National Informatics Center, Raipur.4. Annual Report (2007-08), Chhattisgarh Civil Supplies Corporation Limited .

_________________________________


54

RFID in Supply Chain

Radio Frequency Identification (RFID) is a wireless technology which uses radio frequencies to identify and track down objects bearing the radio tags. Though it was introduced during the 2nd world war for military purposes it was not until the late 1980’s that its commercial usage began starting with livestock tagging. By the end of 1990’s, RFID was being implemented for a variety of uses such as access control, shipping container identification, air freight tracking, motorway e-tolling, automobiles manufacturing, etc. Despite its widespread application in other fields, it was not until Wal-Mart announced its intentions to implement an RFID-tagging program in collaboration with its suppliers that the technology made a big splash in the area of supply chain management. A pallet-level tagging program spanning in nearly 250 stores and 6 DCs was rolled out by the company in 2003. In October 2005 the retail giant claimed that the program helped reduce the retail out of stock (OOS) incidents by 16% but the suppliers complained about the high cost of tagging. The lukewarm response to this first trial was followed by a second unsuccessful attempt that was stalled in 2009. Wal-Mart proved third time lucky with its item level apparel tagging program in 2010 which gave it many positive takeaways. So, what are these incentives warranting the determination with which Wal-Mart is pursuing RFIDs? The health of a supply chain is directly proportional to the amount of useful, accurate information extracted from it and utilized effectively. When implemented properly, RFIDs can help us gain this valuable information almost effortlessly. The primary benefit of RFID is that it lends a distinct identity to the tagged product by storing valuable information pertaining to it. Smartcards and Bar-codes also perform the same task but unlike them RFID tags can read the product even when it is not in line of sight. RFIDs can also store more data, are reusable, durable and offer improved tag read rates since multiple tags can be read simultaneously.The following example illustrates the advantages of RFID technology in detail.Consider 2 companies Firm A (The Supplier) and Firm B (The Retailer). Firm-A is a manufacturer who dispatches finished goods to the Firm-B who is a multi-brand retailer. Both firms have invested collaboratively in RFID technology and have integrated it with their ERP systems. Using VMI systems, Firm-A takes care of the inventory at Firm-B. Both the pallet and the items are

RFID tagged enabling Firm-A to read the movement of goods in Firm-B’s inventory. Both firms are automatically alerted when Firm-B’s inventory reaches replenishment levels. This way an order is placed automatically at Firm-A as and when required and both firms have a real time data about the stock levels. At the shop floor in factory of Firm-A, RFID readers identify the pallet-tags and matches it with the truck number/tag thereby confirming the dispatch location of the items. Readers installed at the exit point of Firm-A and entry points of Firm-B confirm dispatch and arrival respectively of the goods to both firms simultaneously. Thus, the tags also help both the parties to keep themselves constantly updated of the location and delivery status of the goods. The retailer can easily record the entry & discriminate between shipments received from various such suppliers by reading the attached tags. Due to RFID, Firms A and B can complete the identification of outbound/inbound traffic in shorter time duration and with more accuracy than it would take if were done manually thus turning a labor intensive process in to a simple automated process Discrepancies such as delivery delays or faulty items can be promptly identified by Firm-B

using the tag number and communicated easily to Firm-A. Apart from inventory

tracking and management, the tags can also help track sales at Firm-B. This first hand data can be utilized by both firms to identify demand patterns and plan accordingly. This way the information flow is smooth and the discontinuity which often leads to data redundancy, duplication and errors is eliminated. Accurate data is instrumental in reducing the bull whip effect as well. Take a scenario where Firm-A has introduced a sales promotion and has dispatched products to Firm-B’s store to meet the demand surge. Visibility of the products extends beyond the entry point of the retailer’s storage area and continues till the box crushing machines. If Firm-A observes that the pallet tag reads at crusher are missing, it implies that the box is still lying in the storage. Firm-A can immediately follow up with the retailer to ensure that the products go on display thus reducing out-of-stock incidents and thereby capturing sales which would have otherwise been lost. Firm-A can reach the targeted audience and control its promotional activities better through such better visibility of products. Theft detection is enhanced due to RFID’s. Auditing software which monitors item movement off the shelf can be programmed to alert when it detects sweeping of items (unusual bulk movement). Inventory/Store theft can also be detected by cross-checking the tag information recorded against the sales list in the main server. Asset-tracking is another major advantage provided by RFIDs. The tags can be used to store information about the availability, location, maintenance and performance records of an asset on the shop floor. A stock of products stored by the retailer is also an asset and these tags help boost the shelf replenishment speed by reducing the time taken to identify the products in the storage yard thereby minimizing lost sales. The RFID self-checker applications which constantly keep auditing the movement of goods off shelves provides real time data about the demand patterns at different times of the day and thus assist retailers in planning their inventory.

“...Radio Frequency Identification (RFID) is a wireless technology which uses radio frequencies to identify and track down objects bearing the radio tags...”

Author Rakesh Donempudi,PGP 2010 - 2012, Indian Institute of Management Calcutta


55

The improved demand prediction accuracy can help them maintain light stock levels of heavy or low-shelf life merchandise. Waiting time at Point of Sale is also reduced significantly since product tag reading and billing is easier now.So we can see that RFID tags help firms to become more productive by eliminating several supply chain inefficiencies, automating processes and providing useful data. The above example cites only few of the advantages that can be derived from product tagging using RFIDs while many more can be gained by creatively employing this technology. It is essential that a company implementing the technology must evaluate the suitability of its current

operations with respect to the new technology and adapt it suitably. In the earlier case if RFID was implemented as a stand-alone technology without integrating it with ERP, the effortless data capture benefit could not have been realized. RFID readers sometimes encounter difficulties in identifying tags in presence of certain metal used in shelves. This can be resolved by replacing the metal shelves with plastic ones or by retaining barcodes (they function with equal accuracy in all conditions) for specific products. The key point here is that RFID implementation must be augmented by a suitably readapted supply chain if we are to realize the technology’s full potential.As of today the technology is yet to gain the confidence of Supply Chain managers and high investment costs are the major deterrent for RFID acceptance. Moreover, RFID is not an off the shelf technology but requires a customized deployment architecture and the fact that it requires the user firm to proactively adapt to it in order to realize its full potential is another demotivating factor. Nevertheless, there are few pioneering companies whose successful endeavors are bolstering user confidence in this technology and it is only a matter of time before the demand rise will drive down the prices of RFID. With the

promise of a healthier ROIs and improved productivity for store level associates, a company can use the gains resulting from RFID implementation and pass on in savings to their customers and succeed by winning their hearts.

References:1) http://msdn.microsoft.com/en-us/library/aa479355.aspx#rfidintro_topic52) h t t p : / / w w w. s c d i g e s t . c o m / a s s e t s/ O n _Target/10-07-28-1.php?cid=36093) http://www.tutorial-reports.com/wireless/rfid/walmart/tag-advantages.php

4) h t t p : / / w w w. s c d i g e s t . c o m / a s s e t s/ O n _Target/09-02-23-1.php5) http://www.ti.com/rfid/timeline/timeline.shtml6) Pedro Reyes, “RFID in Supply Chain”.

___________________________________