scmpr - logistics executivegirish v s executive editor. 6 scmpr february 2013 contents february 2013...

The Future of Supply Chain

Supply Chain Management ProfessionalSCMPr n practice

n knowledgenbest practicenresearchnhuman resource

February 2013 Vol. 1—No.1 `150

A critical look at impact of Globalization, E-Commerce and Technology on Supply Chain

Page: 20

www.scmp.in

...think supply chain

Industry Portal for the Supply Chain Professional

ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.

As qualified members, you can avail the following benefits:> Subscriptions to SCMPro, monthly Enterprise magazine> Regular invites to Supply Chain Workshops, Seminars, Conferences, etc> Industry Reports> White Papers> Case Studies> Exclusive invite to the elite annual Black Suit Event

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Supply chain advt.indd 2 06/02/2013 12:09:41 PM

editorial

5SCMPr February 2013

It gives me immense joy to bring you this inaugural issue of SCMPro–a magazine for the Supply Chain Professional. Team SCMPro has been an integral part of the Indian Supply Chain Industry and the SCM

professional for the past seven years. A time has come when the SCM professional demands something more–better content, better reading ex-perience, better interaction and better networking. We aim to occupy that space in your mindshare.

This is a time when the nation is looking forward to a glorious future. Befitting that mood, for the inaugural issue we chose our lead theme as the future of Supply Chain Management–a story that takes a deeper look at some of the emerging trends that will define supply chain in India. As professionals we believe that supply chain is the backbone of the progress of India–in agriculture, manufacturing and services. As the winds of glo-balization, information revolution and e-commerce sweep the country, we take a look at some of the defining trends in SCM.

We begin the journey with a freewheeling interview with Dr. Rakesh Singh on the Supply Chain of the Future–a fascinating peep into the emerg-ing trends in SCM. The topic merges seamlessly with our lead theme–the future of supply chain management. We identified seven trends, and present in this issue four major trends–Supply chain collaboration, Supply Chain Risk Management, Governance in Supply Chain and Green Supply Chain. Three trends will be covered in the next issue.

An interesting feature we have introduced is “Academic Advocacy”–a column where we will bring you a lucid explanation of a research article by a leading academician. We hope you like this. Apart from this we will carry a series of opinions and views from a wide spectrum of experts and supply chain professionals.

True to our philosophy of bringing you rich content, we will present to you a strategic view of Supply Chain Management from thought leaders and practitioners from across the world.

We will always value your time you take out to read the magazine and stand committed to providing you with true content. We seek to actively engage you in an exchange of ideas and would like to hear from you of what you would like to read in the future issues.

Happy Reading. Looking forward to meeting you for the next issue.

Executive Editor

Welcoming Supply ChainProfessionals

Girish V s

Executive Editor

6 SCMPr February 2013

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09intervew >>To set the tone for lead story in this issue on ‘Future of Supply Chain Management, SCMPro interviewed Dr. Rakesh Singh, Director, Institute of Supply Chain Management, for a business view of what these trends mean and how we need to interpret these trends for the Indian markets.

12insight >>As the global environment becomes more uncertain, managers need to pay greater attention to risks on the supply side.

31Practice >>Forecast of future demand is essential for all strategic decisions in the supply chain. Forecasting has assumed significant importance and commitment of the firm to its stakeholders.

34back to basics >>The context of constraints has been undergoing sweeping changes in the last few decades; the changes were contextually relevant and have been as essential part in the evolution of TOC concept.

16accademic advocacy >>Global Sourcing can bring many benefits to organizations, but it also exposes them to a number of risks. This paper addresses how managers assess global sourcing risks across the entire supply Chain and what actions they take to mitigate those risks.

6

37case study >>Extracted Case from ‘Research on HUL’s five best practices for Supply Chain excellence’ by Gartner India.

40research >>Supply Chain Management is at the forefront of changes witnessed by auto industry write Dr. Javad Feiz Abadi....

47skills >>In the world of accelerated change, small investments are bringing big benefits to employers in Career Transition and Outplacement writes Darryl Judd.

50books >>An ‘How-To’ and practical guide book on Business forecasting and Demand Planning.

20lead story

Executive Publisher Jayaram [email protected]

EDITORIALExecutive EditorGirish V [email protected]

Consultant Editor Dr. Rakesh [email protected]

CREATIVE & ProductionHead Shivasankaran [email protected]

advertisingSoney Mathew [email protected]

Rashid [email protected] Media Group211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai -400069 INDIA.

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The context of constraints has been undergoing sweeping changes in the last few decades; the changes were contextually relevant and have been as essential part in the evolution of TOC concept.

44talent >>Recognized & standardized vocational training at the operational level and Senior Management practitioners who are sensitized to India specific challenges is the need of Indian logistics industry.

Accademic Partner

SCMPr

SCMPr February 2013 7

Faculty

Participant Profile

Industries

Dr. Rakesh Singh - Chairman ISCM & Director,

Durgadevi Saraf Institute of Management Studies

Dr. Jayram Vaidy

University of Miami

Prof. Piyush Shah

Associate Professor, DSIMS

This workshop is for middle level executives in the

following functions:

• Sales

• Marketing

• Finance

• Operations

• Logistics

• Consumer product groups

• Pharmaceuticals

• Consumer durables

• Automobiles Ancillaries

• Retail

• Chemicals

Durgadevi Saraf Institute of Management Studies23 A, 24 – 28, S.V. Road, Malad (W), Mumbai – 400 064.

For Registration, Please contact:

Ms. Kiran Iyer - 6681 2311 extn. 2314

BUSINESS FORECASTING & DEMAND PLANNINGBETTER FORECASTING • IMPROVED CUSTOMER SERVICE • HIGHER PROFITS

Date: 7th & 8th July, 2011

Venue: 6th Floor, MDP Room, DSIMS Campus.

Investment: Rs. 12,500/- per candidate. Fee is inclusive of study material, lunch and tea/coffee.

Course Overview

The Program will enable you to design & optimise the forecasting

& demand planning proccesses in your firm. The focus will be on

the demand side of the valve chain and focus on sales, marketing,

demand / production planning and demand chain partners. The

specifices include:

• Use the right forecasting method for your products

• Define the roles of different departments and partners

towards accurate forecasting

• Creating internal allignment in the organisation

• The unlearning of myths in demand planning

• Using sales & operations planning (S&OP) to create a culture

of consensus

• Tools & formats of collaboration with external partners & over

coming the barriers towards this.

Faculty

Participant Profile

Industries



Dr. Jayram Vaidy

University of Miami

Prof. Piyush Shah




• Sales

• Marketing

• Finance

• Operations

• Logistics


• Pharmaceuticals



• Retail

• Chemicals








Course Overview





specifices include:







of consensus



Two Days MDP Workshop

Organization all over the world is constantly looking for strategies and methodologies to improve financial performance. Thanks to global com-petition, shortened product lifecycle, demand situation in the economy is no longer certain.

Two day workshop on Business forecasting and Demand planning will enable the executives to design and optimise the forecasting and demand planning processes at their firm. The workshop will cover the different method used for forecasting and demand planning and will explore the best method suited to your environment.

Key takeaways from the workshops:n Moving from Forecasting to Demand Planningn Make the informed decision of choosing the right forecasting method.n Using economic indicators for forecastingn Forecasting of new products and spare partsn Linking forecasts to production planningn Ways to create Internal (S&OP) and external alignment and for better

forecasting

Who should attend.....This program is for medium to senior level executives who is required to perform forecasting/ demand planning. The ideal candidate would be executives from nSales nMarketingnFinancen Operationsn SCM / Logistics

The target industries where learning from the program can be ap-plied are:n Consumer Product Groupn Pharmaceuticaln Consumer durablesn Auto Ancillariesn Retailn Chemicals

Program DirectorsDr. Rakesh SinghDr. Singh is a gold medalist from Mumbai University. He was the former Dean of NMIMS School of Economics Mumbai and Director and Chair Professor of Union Bank Center for Banking Excellence at Great Lakes Institute of Management, Chennai. He is a visiting faculty with IIM Kolkata, INSEAD and Athens University of Economics. He is a consultant with Singapore Economic Development Board, Syngenta, L T, Nivea, Mahindra Tractor, John Deere India Ltd., and many others.

Prof. Piyush ShahProf. Piyush Shah holds an MMS (Operations), BE (Mechanical), CSCP, CPIM, PLS. He was with SPJIMR and NMIMS in the Operations area. He has previously worked for J.K. Tyres (procurement) and Ganesh Anhydride (Maintenance). He has a rich experience in training and has trained professionals from reputed firms like ABB, BASF, Baxter, Capgemini, Dubai World, L&T, Mahindra and Mahindra, Maharashtra Police Academy, Mercedes Benz and many others. He is an official APICS trainer.

Date: 8th and 9th March 2013.Venue: 6th Floor, MDP Room, DSIMS Campus, S.V.Road, Malad (West), Mumbai.Delegate Fee: Rs. 20,000**Inclusive of Study Material , Lunch and Tea/Cofee.

For Registration Please contact: 022 60020121/122 or write to [email protected]

Organised by

Faculty

Participant Profile

Industries



Dr. Jayram Vaidy

University of Miami

Prof. Piyush Shah




• Sales

• Marketing

• Finance

• Operations

• Logistics


• Pharmaceuticals



• Retail

• Chemicals








Course Overview





specifices include:







of consensus



Faculty

Participant Profile

Industries



Dr. Jayram Vaidy

University of Miami

Prof. Piyush Shah




• Sales

• Marketing

• Finance

• Operations

• Logistics


• Pharmaceuticals



• Retail

• Chemicals








Course Overview





specifices include:







of consensus



Knowledge Partner

“Excellent learning about forecasting and amazed by the knowledge of the faculties and topics covered are useful in practical life also.”—Dharmesh Vyas, TML Distribution co. Ltd.

“Workshop helped me understanding the forecasting & supply chain techniques for proper planning and reduction of cost.”—Sanjay Gosalia, SEW Engineering Pvt. Ltd.

Some testimonials from our last workshop on Business Forecasting and Demand Planning

interview


What are the biggest challenges that com-panies face today when it comes to supply chain management?

Supply Chain is no more a back office operation tucked away from top manage-ment attention. Today it is a strong con-tender for deriving competitive advantage for companies. An efficient supply chain is a powerful tool for driving growth and creat-ing competitive advantage. It enables com-panies to deliver products faster and cheaper than competitors. More over, supply chain advantages are hard to copy, ensuring sus-tainable competitive advantage. The biggest challenge in Supply Chain Management is to understand the role that supply chain management plays in delivering competitive advantage for firms. But, for a variety of rea-sons, this is not an easy task.

For one, the supply chains will vary by geographical location, local infrastructure, nature of the product or service and the channels. Companies need to be able to dif-ferentiate the challenges in these domains and set up their supply chains accordingly.

Another fact companies have to recog-nize is that supply chain requirements evolve over time. As the requirements change, sup-ply chains need to adapt. Companies need to constantly alert to these changes in en-vironment and ensure their supply chains are flexible enough to accommodate these changes at all times.

What mistakes do Companies usually make in planning their supply chains?

The biggest mistake that companies make is to think about their supply chains in silos –trying to optimize one aspect in one part of their supply chains. This leads to a one-

size-fits-all approach across all geographies, products, channels, and services. This silo approach makes the supply chain fragment-ed and opaque. Visibility across the chain is very poor.

The key is to think holistically about the entire corporate product life cycle starting from product design, sourcing, manufactur-ing, and sales and distribution processes. To gain the kind of competitive advantage we are talking about, supply chains need to have upstream integration with the company’s suppliers and downstream integration with their distribution chain, right down to the end customer. That is when the company will have a true end-to-end supply chain that can deliver competitive advantage.

How should companies address these chal-lenges?

For supply chains to deliver true value, companies need to think and act in a truly cross-functional manner. There are quite a number of models and “best Practices” advo-cated by many groups. But sadly, these models are not that easy to implement. The success of a supply chain transformation will yield bet-ter results only if the CEO and the board of directors are directly involved in the process. Anything less and the results will be sub-opti-mal. For this to happen, the Board has to have a deep understanding of the challenges in a supply chain and the tradeoffs it needs.

What are the drivers in supply chain innova-tion? What is the strategic importance of these trends?

There are quite a number of drivers that are emerging. Globalization, outsourcing and information technology are re-defining

In this inaugural issue of SCM Pro we are focusing on the Future of Supply Chain Management as envisioned by a few experts in India. The lead story in this issue bring you a peek into the trends in Supply Chain Management in India. To set the tone for the featured story, SCMPro interviewed Dr. Rakesh Singh, Director, Institute of Supply Chain Management, for a business view of what these trends mean and how we need to interpret these trends for the Indian markets. We give below excerpts from the interview.

The Supply Chain of the Future

Rakesh singhDirector, Institute of Supply Chain Management

interview

10 SCMPr February 2013 10

supply chains at a never seen before rate. One such driver is the high speeds with which product innova-tion takes place. This leads to a collapsing time-to-market cycles. Another driver is the need to manage an exponentially increasingly complexity as companies grow their product portfolios and diversify their chan-nels and their geographies.

There is still a long way to go. What we have seen in Indian industry till date is that supply chain as a func-tion is yet to gain the kind of attention of the CEO and the Board when compared to Finance, HR, Mar-keting, Manufacturing, or Product design. I think it will be another ten years before companies fully realize the power and the benefits of an effective supply chain. It’s actually a very big opportunity.

What is that one trend in supply chain management you are worried about?

Unfortunately, the supply chains of today have very little intelligence built in. In its ability to provide the right intelligence, the supply chains would rate as very low. The sad fact is that most supply chains just re-spond, and never anticipate. I am excited about the new set technologies that will allow us to observe, analyse, and then drive an intelligent response. I am also excited about the technologies that will allow us to simulate parts or the whole of the supply chain and learn. The difference here is, whichever way the sup-ply chain is designed–the traditional inside-out view or the recommended outside–in view, we should be able to simulate them.

What are the essentials for successful supply chain strategies?

Again I will focus on the rule of three. The sin-gle most essential feature is for the company to have a clear articulation of its supply chain strategy and a clearer definition of supply chain excellence–right from the Board and the CEO to the junior executive.

Another essential is a correct understanding how the entire supply chain–the various layers, entities and owners and the processes the company has works and their inter-links.

The third is flexibility and resilience–having a fea-sible plan that takes into account time horizons, geo-graphical distribution, multiple owner constraints but still allows for variability and resilience.

For the first time, customers are really creating products, not just buying whatever is offered by the sellers. They’re now even reaching down to their sup-pliers’ suppliers. Eventually this translates into much better management of inventories and lower mark-downs in the stores

How do you think globalization and e-commerce will impact supply chains?

We are at present focusing on going global. We now realize that going global also means we have to be fast-er, cheaper and more reliable. This means our supply chains have to be in a position to send these signals up and down the line instantaneously. E-commerce is just a manifestation of a distributed global customer base. It enables a customer outside our supply chain reach to demand our products. Our supply chains now need to extend to areas we had not planned for. And one way I would like to believe is that we will start focusing on collaborative supply chains–where we collaborate with various entities to extend our reach.

Your thoughts on outsourcing vs. own Supply Chains?Oh! That is a difficult one, for the very simple reason

that there are quite a number of flavours in outsourcing of supply chains. Again, let me look at the top three reasons.

Lowering the cost through outsourcing - It is a uni-versally accepted fact that outsourcing of supply chains will ultimately lead to lower costs. However, whenever companies have exclusively relied on the “Transaction Cost Reduction Logic” to outsource, they have failed to garner the expected benefits. The decisions to out-source should be made on a total costs basis after a careful analysis of the impact of outsourcing on the rhythm and cycle on the extended supply chain.

Sharing of resources - In the some industries like chemical and semi-conductor sectors, companies have successfully consolidated their value chain assets. In the semi-conductor industry, it’s called “fabless manu-facturing network.” Generally asset-intensive industries would be attracted by such strategies. In service indus-tries Telecom is a good example, where players are will-ing to share Towers. The redefinition of relationships to share resources is a fascinating move in the industry.

Outsourced Distribution – the time for us to ex-plore third-party distribution has come. For a SME or a new entrant which does not have the scale and reach to ship directly to its customers, or when a third party can provide the cost and reach advantage over an own chain, outsourced distribution has a clear advantage through established carrier and channel relationships.

All of these forms of outsourcing will continue to evolve through 2013. We have moved from internally focused supply chains to value networks.

Will sustainability affect the design and execution of supply chains of the future?

In the western world there is a huge drive towards sustainability. We are yet to see such a demand by cus-tomers in India. However, if we have to expand into

interview


developed markets, we need to be more aware of the impact of sustainable supply chain on the lifecycle of our products and services. The alarming thought is that we are entering an era where supplies will not only be constrained, but they may not be available at all. The rising costs of commodities will drive sustain-ability initiatives. Going forward the mantra will be “reduce, recycle and reuse.”

How important is it to incorporate sustainable devel-opment into SCM?

There is clearly a need to deploy resources to build sustainable supply chains. In a supply chain, sustaina-bility means taking cognisance of the impact of major environmental, social and economic factors through-out the product life cycle–from design to end of life. Unfortunately Indian firms lag in this initiative. But across the globe, demand for products manufac-tured with sustainable raw materials, and distributed through sustainable supply chains is increasing. It is reckoned that the demand for sustainable products now outstrips supply.

An important fact in sustainability is that, even if a company outsources specific business activities, it is still responsible for them. The company has to keep track of all the risks in its extended supply chain as well as spot profit opportunities sustainability might offer. I see three main reasons for investing in sustainable supply chain management–to mitigate the risk of unintended environmental or social damage, to manage reputation and the expectations of shareholders, and to reduce costs and realise productivity improvements.

Can Sustainable Supply Chain offer business benefits?For businesses to embrace sustainability as a con-

cept, it will need to add value and have a strong busi-ness case for companies to make that switch. I have no doubt that the future of supply chain management is sustainability. Quite a number of forward thinking companies in India are already taking steps to develop sustainability within their supply chains. Today there is a strong consumer pull in developed markets for ethical, fair trade, organic products and more sustain-ably sourced products. Businesses in India are slowly waking up to this challenge. Look at the problems our carpet weavers have with child labour issues! Consum-ers in many markets are ready to pay a premium for sustainably sourced products. Another factor that can create a buy in by companies is the impact sustainabil-ity has on their brand reputation and good will. Today this consumer pull is largely absent in India. But I am sure; sustainability will be a key to global markets. We cannot afford to miss the bus.

How can you reach into the supply chain to bring business benefits?

Let us look at a traditional outsourcing contract. The easy approach for a company is to place an order for finished goods and let the supplier worry about buying the raw materials. But the problem here is that the supplier may not have the required bargaining power–it may be too small to demand the required deliveries from its suppliers. This is where the com-pany needs to step in.

Since the company knows the demand for its prod-ucts, and the schedules, it can tie up raw materials and manufacturing capacity well in advance, so that the raw materials reach the manufacturer just in time, thereby reducing the product cycle. To shrink the de-livery cycle, the company has to go upstream to organ-ize the raw materials needed for production. At the same time the company can extend its reach down-stream to the seller by servicing them just in time. It boils down to flexibility, shorter response time, small production runs, and small order quantities to exploit changing customer preferences.

In conclusion, what do you think will be the most prevalent supply chain management trends in 2013?

There are many trends that I can think of. But let me limit myself to the top three trends as I see them.

Building of Strong coordination between supply chains - We can see this in the redesign of the entire product cycle, where it expands the functions of the supply chain to connect entities from the customer’s customer to the supplier’s supplier–all working seam-lessly to achieve the overall corporate objectives.

Demand Orchestration. As commodity prices contin-ue to rise, companies will be looking at means to drive de-mand–that is how to translate the demand from buy-side to sell-side. This information will be used to set pricing, define promotions and schemes, establish the most eco-nomic product composition, search out alternate sources and design network strategies to gain market share. Com-panies which can effectively drive demand and decrease the latency of demand will emerge as winners.

Data in Supply Chains. There is a huge amount of data embedded in supply chains. The data is available as demographic data, social data, sensor data, channel data, customer service data, customer preference and velocity of buying data etc. Today the companies are fairly good at analysing structured data. But the cur-rent thrust is to master the unstructured data all round us. The availability of data is increasing in quality, vol-ume, type and velocity. Companies will have to learn new analytical tools and techniques to master unstruc-tured data–I believe it is called “Big Data”.

insight


Supply chain managers are reconciled to the fact that customers are fickle. They understand that demand is uncertain and forecasts and plans

are invariably inaccurate. They’ve become adept at coping with demand uncertainty by using various buffering strategies including the deployment of inventory safety stocks. When it comes to understanding and man-aging uncertainty and risk on the supply side, however, they are typically far less ac-complished.

After the global crisis hit a few years back, I remember being on a panel at which we were discussing supply chain uncertainties, including the supplier risk that might arise from a dearth of credit in the financial sup-ply chain. One of the other panel members agreed with my view that demand-side un-certainty might increase significantly be-cause of the financial crunch. However, he refused to accept that the same could hap-pen on the supply side. He could not en-vision any supply-side uncertainties that he couldn’t manage around—and the audience agreed with him.

Managers take great pains engineering supply chains so that customer demand will

be met: period! Internal and external supply sources know in advance what to do, and are prepared to keep goods flowing no matter what happens. The mindset is to plan well enough in advance. And if things don’t go according to plan, you fix them later. Sup-ply chain managers resort to expediting and redirecting shipments as well as changing plant schedules to produce goods on an emergency basis.

This modus operandi has worked over the years because the level of supply-side uncertainty was insignificant compared to the demand-side. On those occasions when supply went amuck, managers could figure out away to respond, albeit some-times inefficiently. However, things have been changing.

Global Forces Increase UncertaintyTo paraphrase the late comedian Gilda Radner, when you operate a global sup-ply chain: “It’s always something.” Sup-ply chains have gotten longer and more global, so chances have increased that some “bad” event coming from the supply side will disrupt them. The factors that can drive this supply-side turbulence and

Don’t ForgetSupply-Side Risk

As the global environment becomes more uncertain, managers need to pay greater attention to risks on the supply side. A technique called decision analysis can help.

Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate.He welcomes comments on his columns at llapide@ mit.edu.

insight

13SCMPr February 2013 13

Don’t ForgetSupply-Side Risk

uncertainty—political, economic, Mother Nature, to name a few—seem to be inten-sifying every day.

Consider just a few examples: Credit is still hard to get, which puts the financial vi-ability of small suppliers at risk, possibly cut-ting off the supply of production materials. The Japanese Tsunami and the Thai floods of last year disrupted the high-tech and au-tomobile supply chains for some time. The Arab Spring caused the disruption of supply chains in those Arab World countries. Sev-eral Latin American countries are now more inclined to nationalize businesses—think about Venezuela, Argentina and Bolivia. Pi-rates continue to disrupt supply lines off the coast of Somali. Lastly, politicians around the world are expressing concern about the unemployment of domestic workers, putting outsourcing and off-shoring pro-grams at risk.

Bad Things Can Happen to “Best Decisions”Managers will need to employ risk manage-ment strategies to cope with the growing supply-side uncertainties.

They’ll need to understand the risks, make decisions recognizing possible im-pacts, and live with the reality that deci-sions will invariably lead to both good and bad outcomes. From time to time, they will regret decisions made and may be even feel that they have lost control of supply chains. Will they be able to reconcile themselves to the reality that although they make the best decision possible, bad things might still happen?

A good example of a best decision leading to a bad outcome comes from the world of professional football.

New England Patriots Coach Bill Beli-chick has been criticized for a decision made in a 2009 regular season game against the Indianapolis Colts. Conventional wisdom says that whenever it’s fourth down and the ball is deep in your own territory (the 28-yard line in this case), you punt the ball to the opposing team so they have a long way to go for a touchdown. That’s especially true when it’s late in the game, you are win-ning by six points, and the other team only needs to score a touchdown and an extra point to win.

Belichick bucked conventional wisdom and decided to try to make the two-yard gain needed to get a first down and seal the game. The play failed. The Colts got

possession of the ball, scored, and won by one point.

Football fans thought Belichick made a bad decision. The next day, however, the Wall Street Journal published an article arguing that he made the best decision. The au-thor argued that the Patriots had the best chance to win by relying on its offense to gain the yards needed because the Colts would almost certainly score in the time allotted—irrespective of where on the field they took possession of the football.

Managers will need to employ risk management strategies to cope with the growing supply-side uncertainties.

Alternative Courses of Action

Decision 1

Decision 2

State 1 (e.g. Pessimistic

Outcome

Payoff11

Payoff21

State 1 (e.g. Most Likely

Outcome

Payoff12

Payoff22

State 1 (e.g. Optimistic

Outcome

Payoff13

Payoff23

EXHIBIT 1

Example of a Payoff Matrix

States of Nature

insight


Decision Analysis Can HelpGiven what’s been happening on the supply side, managers are going to be making tougher decisions under un-certainty. Like Belichick, they’ll need to recognize that the best decisions do not always lead to good outcomes—they just increase the chances of good outcomes. So how should supply chain managers go about making these decisions?

Decision analysis provides a framework that can help. The technique involves first understanding uncertainties, then their im-plications, and lastly deciding what to do. The analysis revolves around the develop-ment of a “Payoff Matrix” (see Exhibit 1).

The example shown is for two possible deci-sion options and three random outcomes. The rows represent alternative courses of action or decisions. The columns represent the random states of nature, or outcomes, that might occur. The entries in the matrix cells represent payoffs (for example, profits and margins) that would result when a de-cision is made and a given state of nature happens. So Payoff12 would be the amount of payoff if Decision 1 was taken and State 2 occurred.

Let’s take a simple example of deciding how many hours to schedule plant produc-tion. Two scheduling decisions might be: (1) one 8-hour shift and (2) one shift with two hours of overtime. Three random states of nature might involve the availability of production materials— for example, Short-

ages, Adequate, and Surpluses. The payoffs might be in terms of plant costs. Payoffs-would be comprised of all material and production costs including those associated with actions taken to execute “exception management” or contingency plans when an undesirable outcome occurs. For exam-ple, if shortages occurred, actions might involve expediting or redirecting materials, reducing overtime, or rescheduling plant activities.

A Payoff Matrix identifies the implica-tions of what might happen should each of the decisions be taken and each random out-come occurs. There are a variety of criteria in decision analysis that can be used to ascertain

the “best” decision for a company depending upon its risk aversion. For example, an opti-mistic risk-loving company might gamble to try to get the highest possible payoff, while a pessimistic risk-averter might gamble to get the largest of the minimum possible payoffs. Others might follow a scientific approach and estimate the probability that a given outcome might happen, and then pick the decision that optimizes the expected payoff.

The decision criterion selected will dic-tate the “best” decision a company ought to make relative to that criterion. Once de-cided, however, managers will need to recog-nize that even the best decisions don’t always yield good outcomes. That’s just they way it is when planning for today’s riskier global supply chains.

Decision analysis provides a frameworkthat can help. The technique involves firstunderstanding uncertainties, then their implications, and lastly deciding what to do.

SCMPro POWER ROUNDTABLESupply Chain in India – Analyzing the ASEAN Impact

5th April 2013Time: 14.00 – 17.00DSIMS Seminar room, 6th Floor, RS Campus, SV Road, Malad West, Mumbai.

Participation Fees (By Invite Only) : Rs. 5000 /- per personRSVP: Kiran Iyer: 6681 2311 EXTN. 2314Soney Mathew: 60020121 / 9870062703

The Indian supply chain industry is still in its infancy – coming out from the un-organized sec-tor to the formal organized formats. While doing so there are quite a few external challenges we face. One major factor we need to analyze is the impact of what is happening in our back-yard - the ASEAN countries and its impact on our supply chains.

As a part of our commitment to create a vibrant SCM community in India, SCMPro in associa-tion with ISCM brings you a power roundtable on “Supply Chain in India – Analyzing the ASEAN Impact”As a leading professional involved with the supply chain function, we invite you to be a part of this groundbreaking roundtable.

About ISCM: The Institute of Supply Chain & Management (ISCM) is the leading forum for supply chain professionals to share best practices, strategic insights, business chal-lenges and explore the innovations in Supply Chain Management in India. ISCM Roundtables tackle the most prevalent supply chain issues facing the Indian market.

About SCMPRO: Supply Chain Management Professionals (SCM-Pro) is a thought leadership organization: conducting Seminars, Workshops, Panel Discussions, Conferences and many other knowl-edge based forums for the supply chain and logistics professionals. Started by a group of experienced and dynamic professionals from supply chain background and supported by industry experts, SCMPro platform offers high networking opportunities towards enhancing business potential for our patrons and members.

Co- Hosted by Academic PartnerHosted by

13.30 – 14.00 Registration14.00 – 14.15 Welcome Address - Mr. Girish V S, Executive Editor, SCMPro14.15 – 14.45 SCM in India – an overview 14.45 – 16.45 Dialogue – Supply Chain in India – Analyzing the ASEAN

Impact.

Panel moderated by Girish V SPanelists (TBC)

16.45 – 17.00 Closing remarks17.00 – 18.00 High Tea Networking 18.00 Events Ends

PROGRAM






Approaches To Managing Global SourcingGlobal Sourcing can bring many benefits to organizations, but it also exposes them to a number of risks. This paper addresses how managers assess global sourcing risks across the entire supply chain and what actions they take to mitigate those risks.

A research paper by Martin Christopher and Carlos Mena - Cranfield School of Management, UK, Omera Khan – Hull University Business School, UK and Oznur Yurt Department of Logistics Management, Izmir University of Economics, Turkey. The original paper can be accessed at: www.emeraldinsight.com/1359-8456.htm

academic advocacy

academic advocacy


4. Most models aim to solve a dif-ficult problem related to globaliza-tion, but few address the practical global supply chain design problem at a more comprehensive level.

Lower labor, land, raw material and facility cost are the most com-monly accepted reasons for global sourcing. In addition to the pos-sibility of lower costs, there are a number of benefits to be gained from global sourcing, such as, ac-cess to new markets, better qual-ity and higher flexibility. However, these benefits cannot be guaranteed for companies which source global-ly, since the trend of global buying has also increased the risk exposure.

A Global Sourcing Risk FrameworkDecision making on global sourc-ing requires a holistic view on risk management. Although several strategies have been suggested for risk management in the supply chain context, there are no risk management models that focus specifically on global sourcing.

An adaptation of a four pronged model for resilient supply chain can be used to frame the strategies for mitigating global sourcing risk.

1. Network re-engineering: Al-though companies generally have a good understanding of down-stream networks, it is not always

relate to factors internal to supply chain and Environmental Risk re-lates to factors external to the sup-ply chain.

Global SourcingThe global supply chain models developed before 1990 focused on the global plant location problem. The models developed between 1990 – 95 continued to emphasize on plant location and also paid at-tention to transportation issues, infrastructure, lead times, cur-rency fluctuations and supplier se-lection criteria. Later models con-sidered price as a variable and took global sourcing as a part of global supply chain strategy and linked it with marketing.

The common understanding of the issues in global supply chain models are:1. Global supply chain models need to address the composite supply chain design problems by extending hem to include, both in-ternal manufacturing and external supplier locations.2. Global supply chain models need a broader emphasis on mul-tiple production and distribution tiers in a supply chain .3. Performance measures used in Global supply chain models need to be broadened in definition to address alternative objectives.

Increased globalization of de-mand and supply, ever more demanding customers, short-ening product cycles, and

proliferation of product variety have pushed buyers to source prod-ucts from across the globe – essen-tially to seek new sources of com-petitive advantage. This in turn has increased their exposure to Supply Chain Risk.

Any component of the multi layered supply chain can cause de-lays, or worse, fail. This paper looks at one aspect of Supply Chain Risk – the Supply Risk. In spite of re-cent academic interest in SCRM, there is still a limited understand-ing of how supply risks should be assessed when making global sourcing decisions and how they are mitigated once global sourc-ing is in place. This paper addresses this by answering the question: How do Managers assess global sourcing risk and what actions do they take to mitigate it.

Supply chain risk can be classi-fied into five categories:1. Process risk2. Control risk3. Demand risk4. Supply risk5. Environmental risk

Process and Control Risks relate to factors internal to the organiza-tion. Demand and Supply Risks

EnvironmEntal risk

Fig. 1: The Relationship Between Supply Chain Risks

Supply RiSk pRoceSS RiSk

contRol RiSk

demand RiSk

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that the upstream network is un-derstood. Companies that source globally must redesign supply net-works by considering criteria other than cost and customer service, since they are exposed to different types of risks compared to compa-nies which are members of conven-tional supply chains.

2. Collaborating between glo-bal supply chain parties: The management of risk has to be net-work wide. The global sourcing risk has to be highly collaboratively managed within the sourcing net-work. A closer relationship between parties based on trust, transparency of information and co-operation will lead to more collaborative ac-tivities. Enhancing collaboration between buyers and suppliers can significantly help mitigate risk.

3 Agility: Supply chain agility is defined as “the ability to respond rapidly to unpredictable changes in demand or supply”. Agility is criti-cal in terms of the global sourcing process since it reduces company’s response time to supply disruption. However, firms can only facilitate agility if upstream and downstream partners are similarly agile. In the global sourcing context, the agility of the focal company and its up-stream partners must be sufficient to implement an overall agile strat-egy to mitigate risk.

4. Creating a global sourc-ing risk management culture: A fundamental pre-requisite to achieving risk mitigation in glo-bal sourcing is to create a risk management culture in business. Creating a risk management cul-ture across the business can only succeed if it is led from the board-room. In other words, there has to be a conscious focus on monitor-ing and managing the risk profile of the business – particularly the impact that supply chain deci-sions have on that profile. To this end, the establishment of a supply

chain continuity plan and the cre-ation of a business wide awareness of the issues are vital.

It is inevitable that these strat-egies, managed in isolation at present, are inter-related, and thus have to become integrated. For example, collaborative strategies increase the visibility level in the chain which leads to a more agile supply chain.

The main objective of this re-search was to understand how managers actually assess global sourcing risk and what actions they take to mitigate it. A total of 30 managers whose responsibilities are to manage global sourcing and / or supply chain risk in their compa-nies were interviewed.

In this study, the risks specified by the managers interviewed are

classified according to the global sourcing risk groups: Supply Risk, Environmental and Sustainability Risk, Process and Control Risk, and Demand Risk.

FindingsSome of the findings of the re-search are:1. On-time delivery and assured quality are two competing priorities and are often difficult to achieve simultaneously. The trade offs and inter-relationship between these are not been clearly established.

2. Another issue was the poor synchronization in the supply chain because of outsourcing and/or offshoring decisions, exacer-bated by product complexities. A lack of communication with glo-bal supply base, which may not understand the product require-

ment and the brand strategy, was a key risk.

3. The span of global sourc-ing risk and its boundaries are not yet well defined for practioners. Nevertheless, the indirect effect of demand risk was visible, which in-dicates an increasing awareness of global sourcing risk and its possible effects. However, it is not possible that all different sources of global risk are recognized by practition-ers in the same way that researchers perceive them.

4. The significant finding was that managers from almost 50% of the companies investigated had no specific risk management process; although a number of companies were in the process of developing one as a part of their business con-tinuity planning.

ConclusionGlobal sourcing trends are making supply chains longer and more frag-mented. This is exposing firms to greater costs and risks. The study pro-poses four generic strategies for man-aging global sourcing risk : Network re-engineering, collaboration, agility and risk management culture. Evi-dence of each of these strategies were found, although no single company was applying them all. Although man-agers interviewed in this study were aware of many of the risks of global sourcing, they were not implementing them systematically and holistically.

Organizations could use the four pronged framework proposed in this paper to review their cur-rent strategies for managing global sourcing risk and to devise future strategies that are more compre-hensive and robust.

There has to be a conscious focus on monitoring and managing the risk profile of the business.

SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry. Specialised articles are contributed by the Industry Leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published in the 1st week of the month, the magazine is distributed to the readers through courier. Currentxly the print copy of the issue is available only for readers based in India. cover Price 1̀50/-

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As Supply Chain emerge from fragmented, tiny and small scale operators to larger corporate format, we explore some of the trends on which SCM will shape-up in future. Report by Girish V.S., Executive Editor.

the supply chain within an organization is continu-ally at risk for some type of disaster or interruption that causes at a minimum of lost time and money and at worst, closure of business . We explore this newly emerging frontier in Supply Chain Risk Management.

The sixth trend is “Greening the Supply Chain” – In today’s competitive business environment, Green is not just being environment friendly but also bring-ing a better business sense as well as bottom-line for your organization. Sustainability is one of the key is-sues that will define the supply chain of the future. We explore the impact of Green on supply chain man-agement, and how green practices can save money, increase efficiency, and reduce delivery time. There is a strong “sustainability” bent to supply chains, for example a collaborative logistics such as shared truck capacity across competitors and hub locations outside of major cities from which local deliveries are made have a great deal of merit and likelihood of occurring.

The seventh trend is Governance in SCM – As we evolve in our supply chain practices, corporate covern-ance will define the acceptability of the supply chain to the larger buyers. And as we emerge from fragment-ed, tiny and small scale operators to the larger formats, governance will take centerstage. What will this mean to the SCM players of the day? We explore four of the above seven trends in this issue.

Creating a Coordinated Supply ChainThe recent trend towards globalization, outsourc-ing and rapid innovations in information technolo-gies has created strong interlinks among the supply chains. Resources, cash and information flows, which were handled in silos, are increasingly interconnect-ed. This increasingly complex layering brings some elements of uncertainty and risk along with rewards and benefits. All members of the Supply Chain must

A well tuned Supply Chain is central to the sustainability of business. This is something that we have been discussing in various fo-rums and platforms. But a more important

issue is - What will the supply chain of the future look like? We asked ourselves this question. The more we look at it, we feel there are actually quite a number of issues around this topic. And we decided to explore this aspect for the inaugural issue of SCM Pro. The first question we had to address was – how far into the future do we want to go? As we can’t predict the supply chain of the future without some assumptions about the world of the future. we decided to look at a five year framework. That settled, we looked at a few Trends that would define the supply chain of the future:

The first trend is “Creating a co-ordinated Supply Chain” – a look at how information, material, and fi-nancial flows of mutually dependent business partners in supply chains can be optimally coordinated across multiple tiers.

The second trend that strikes is “Multi-Owner Supply Chains” – how can we create a multi-objective Supply Chain with centralized decision making, trans-parent and implementable SCM in practice.

The third Trend is “Collaborative Planning, Fore-casting and Replenishment” - For Supply Chains that already share information, the returns from addi-tional information sharing are diminishing - the focus should be on a process model, shared by the buyer and supplier, through which inventory status, forecast, and promotion-oriented information are shared and replenishment decisions generated

The fourth Trend is “Secure Collaboration” - Infor-mation Asymmetry is one of the major sources of inef-ficiency in managing supply chains - how to develop protocols to enable Supply-Chain Partners to make decisions that cooperatively achieve desired system goals without revealing private information.

The fifth trend is supply chain risk management –


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work towards an integrated system and coordinate with each other to meet these challenges. In other words, the need of the hour is for supply chain co-ordination. Coordination is essential for successful supply chain management, particularly when man-agers try to optimize their supply chains. There is a need to identify the coordination mechanisms which helps in addressing the uncertainty in supply chain and achieving supply chain coordination.

Global supply chains are generally complex with multiple entities and activities - inventory, sourcing, logistics, production planning, and a tangled relation-ship with finance, HR, marketing and performance measures – both within the organization and between organizations. These activities are usually spread over multiple departments, organizations or geographical locations or over long time horizons. Large supply chains tend to increase in complexity and the involve-ment of multiple suppliers, service providers, and end consumers in a complex network of relationships causes risks and vulnerability for everyone.

From the start of the manufacturing process, the product passes through a number of entities who con-tribute in adding value to the product before its con-sumption and ultimate disposal at the end of its life (If applicable!). In addition, practices like outsourcing, globalization, and reduction in suppliers have magni-fied the vulnerabilities and risk exposure, making the entire chain prone to disruption. Initially, the focus of supply chain activities was on vulnerabilities in rela-tion to volatility of prices, supply lead time reliability and demand fluctuation. This was in a large part ad-dresses using increased safety or buffer stock, inven-tory pooling, order split to suppliers, and various con-tract and hedging strategies. But as the supply chains became global, these simple measures do not suffice.

To improve the overall performance of the glo-balized supply chain, the members of supply chain need to operate as a part of a unified system and co-ordinate with each other. Thus “coordination” comes into focus.

What to coordinate?A supply chain is composed of multiple partners among whom a wide range of financial, informa-tion, and product/service flows. If the objective of the firm is maximizing customer value and providing a profit for each supply chain member, the firm should focus on creating synergistic relationships between the supply and distribution partners so that these information flows can be used to create value to all stakeholders. However, given the disjointed nature of the supply chain in India, an effective and efficient

mechanism to coordinate the actions of the individu-al supply chain entities that will align their decisions with the objectives of their global supply chains is ab-sent. In such a disconnected scenario, each supply chain entity attempts to optimize a part of the chain they are exposed to, without considering the impact of their decisions on the performance of the system. This can be counterproductive. Trying to optimize only parts of a large and complex system often yields poor performance, resulting in higher system costs, a sub-optimal allocation of scarce resources, reduced customer service capability, and a compromised stra-tegic position. This decentralized decision-making process is the traditional mode of operation in today’s business environment.

The supply chain models in practice are essentially single owner chains who took a centralized perspec-tive of the one parameter they wanted to optimize – either lower cost or improve delivery time or any other single objective the firm decided. And the coor-dination mode is essentially binary – the two adjacent partners in the supply chain coordinating their activi-ties. The information required for decision making in such a situation is either not available or is asym-metric – one entity in the chain has more knowledge of the situation than the other. This resulted in supply chains operating as separate entities, with no single entity having a holistic view of the entire chain. A good example would be the famous IBM parts inven-tory system. This leads to the buildup of huge buff-ers – in raw materials, work in progress and finished goods inventories. In addition firms create “capacity buffers” – building more capacity than what is neces-sary or “Lead time Buffers” where firms build in ad-ditional lead time for execution.

The rapid deployment of information systems in supply chains has helped improve the co-ordination between various parts of the supply chain. According

Initial efforts in response to social, labor, safety and health

issues led to the adoption of a “code of conduct” approach by the corporate for its suppliers and vendors. This essentially meant the suppler had to adhere to working conditions, minimum wage and safety and health norms if they wished to do business with the corporate.

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to a study by Sahin and Robinson (2002) the potential savings associated with enhanced information sharing and decision coordination could reach as high as 35% of total system costs, depending upon the particular operating environment and problem assumptions. A key finding from the study showed that while infor-mation sharing was often considered a “silver bullet” for supply chain improvement, even greater benefits in system performance are available through decision-making coordination, which aligns all information and incentives to support global system objectives.

The challengeThat various entities in a supply chain should come together and coordinate their activities is easier said than done. Each entity in the chain has a different focus and goal. Establishing structured relationships between the entities of a supply chain to attain infor-mation exchange is a challenging task. This requires identifying the value of the potential benefits of this sharing and then devising strategies for sharing the investments, costs and benefits among the supply chain members.

This assumes serious proportions when we realize that most of the supply chain is beyond the manager’s direct control. Managers have to learn to work to-gether, sharing information and communicate freely to achieve proper co-ordination. But information sharing is not a much appreciated practice in firms in

India. Firms have serious issues in sharing data with external entities, even if they are an integral part of their own operations!

The forms of co-ordinationThe co-ordination can take several forms. One way to look at it is as structured or un-structured co-ordination. In structured co-ordination, firms have a well defined set of processes and people who will work together and synchronize the f low of in-formation, goods, services and finance across the supply chain. The un-structured firms play it by the ear.

The form co-ordination can take depends on the command structure – a centralized process where a single person co-ordinates the entire chain or a de-centralized for where teams use formal structures to achieve co-ordination.

While these approaches work well in small and fragmented supply chains, the emergence of glo-balized chains has introduced the need for a formal co-ordination mechanism among supply chains. True co-ordination means the evolution of co-ordination mechanisms – not a set of firm specific tools, but a generalized process that can be applied across the chain irrespective of the form or style of the coor-dination. The catch here is that managers need to understand the specific coordination problem and the solution to that problem. This is a complex and

Min (2001)

Porter (1985)

Christiaanse and Kumar(2000)

Jorgensen and Zaccour (2003)

Lee, Padmanabhan, and Whang (1997)

Robinson and Sahin (2003)

Cachon (2004); Jeuland and Shugan (1983); and McDermott, Franzak, and Little (1993)

Benefits of Supply Chain Co-ordination – A view from academicians!

Source: Supply chain management coordination mechanisms by Brian Fugate & Funda Sahin

Supply chain coordination provides risk reduction, access to resources, and competitive advantage.

Coordinating with upstream and downstream supply chain members is not a zero sum game; it lowers costs for all participants.

Supply chain coordination dictates the cost improvement and value that can be gained.

Uncoordinated decision-making creates inefficiency with the channel members’ profits significantly lower for each channel member independ-ently and collectively than what could be achieved with coordination.

Coordination of pricing, transportation, inventory, and ownership deci-sions between upstream and downstream supply chain participants can provide inventory reductions of up to twenty-five percent.

Partial coordination (defined as the manufacturer’s coordination of mul-tiple item replenishments with transportation decisions) results in over thirty percent system-wide cost reduction.

More interorganizational coordination yields lower total costs and higher profits.

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difficult task. Various coordination mechanisms have been proposed - price, non-price, buy-back and re-turns policies, quantity flexibility, and allocation rules to name a few.

ConclusionThere seems to be a general lack of managerial abil-ity to integrate and coordinate the intricate network of business relationships among supply chain enti-ties. Supply chain coordination is a vehicle to rede-sign decision rights, workflow, and resources between chain members to leverage better performance such as higher profit margins, improved customer service performance, and faster response time.

Governance in Supply Chain - Responsible Supply Chain

Management (RSCM)Based on a study of Global CSR and Copenhagen Business School. Corporate supply chains have grown in scale and com-plexity globally over the past decades. Freer access to markets forced companies to either source from sup-pliers in developing and emerging economies, or to move/outsource production to these regions. The ar-gument - cost advantage these regions offer. As a busi-ness strategy, this delivers significant benefits such as reduced costs, and enhanced profitability and share-holder value. On the social front, it contributes to much needed economic and social development, and higher standards of living for millions of people in these regions.

However, widespread concerns about poor social and environmental conditions in companies’ supply chains have emerged. On September 24, 2012, work-ers at Foxconn Technologies Ltd., a supplier of parts to Apple went on a riot over poor labor conditions and discrimination. Two days later, the Apple stock lost 5% of its value – from USD 695 to USD 660, a fall that wiped out USD 30 billion from Apple’s market cap. Compare that to the market cap of firms like Fedex, Bank of New York, General Dynamics - all have market caps below $30 billion. Similarly, in May 2010, Apple stock fell 12% from around USD 270, wiping out tens of billions from Apples market cap. The reason – worker suicides at Foxconn Technologies! Markets tend to punish a firm for social and environ-mental issues in their supply chains. Closer home, In-dian Carpets face a ban in many western markets over child labor.

Such public scrutiny of business behavior has led

to rising expectations that companies are responsible for the environmental, social and governance (ESG) practices of their suppliers. Failure to address suppli-ers’ ESG performance can give rise to significant op-erational and reputational risks that can threaten to undermine any potential gains from moving into these markets. As a result, a company’s overall commitment to corporate citizenship can be seriously discredited if low standards of business conduct are found to persist in their supply chain.

Weak implementation of local, social and environ-mental regulation has forced companies to address is-sues that traditionally have been seen to lie outside of their core competencies and responsibilities.

This makes RSCM an important part of the corpo-rate social responsibility (CSR) dialog. RSCM prima-rily emerged as a corporate response to human rights risks appearing in suppliers’ operations – be it the infa-mous sweat shops, child labor, forced labor, safety and health neglect and similar violations. Lack of effective human rights governance in the suppliers facility as well as stakeholder pressures on the buyers to react, paved the way for RSCM as we observe it practiced by corporations today.

Initial efforts in response to social, labor, safety and health issues led to the adoption of a “code of con-

duct” approach by the corporate for its suppliers and vendors. This essentially meant the suppler had to ad-here to working conditions, minimum wage and safety and health norms if they wished to do business with the corporate. To ensure compliance to the Code, the corporate frequently monitors and audits its suppliers. Regular visits at suppliers’ premises by company em-ployees trained to assess suppliers’ performance against Code requirements has become common practice. In addition, some companies require external auditing by independent third party CSR auditors. Violations will hae to be addressed by the supplier or face ban.

Such “code of conduct” systems are implemented in countries where lack of governance on human rights, environmental protection and anticorruption is wide-

The supply chain best practices adopted by companies have led to the introduction of new risks or enhanced the impact of a previously low risk. .

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spread -quite often in developing countries.The focus then shifted to a more generalized ap-

proach, where industry wide codes were developed. For example, this initiative evolved led to the develop-ment of Electronic Industry Code of Conduct (EICC), Business Social Compliance Initiative (BSCI), the Ethical Trading Initiative (ETI), Social Accountability 8000 (SA 8000), ILO’s Better Work initiative and Fair Labor Association (FLA). Another significant shift was from policing the supplier to building supplier capa-bility to address these issues.

Challenges to RSCMThe current implementation of RSCM has a few drawbacks. Notable among them are:

The lack of impact–despite the considerable spend by businesses on monitoring and auditing the imple-mentation of the code, relatively minor impact on benefit to workers and other stakeholders is observed

Code Mania–Suppliers face multiple codes from buyers, often contradictory and with differing de-mands when they are implemented by various buy-ers. This is not hard to understand – the buyer has to be audited on multiple standards simultaneously. This leads to increase in cost for the supplier. The Suppliers are also faced with contradictory requirements from different buyers – an often quoted example is of one

buyer specifying the door open inwards and the other supplier specifying it open outwards – for the same facility! Yet another challenge is the need to achieve the highest possible standard – which either leads to a buyer opting for a ride on another buyers audit and also the possible exclusion of suppliers who cannot ad-here to such standards.

Bottlenecks from traditional Supply Chain Man-agement–The imposition of buyers’ additional CSR requirements to their traditional SCM entails that suppliers have to live up to criteria from conflicting practices simultaneously–CSR on one side and pro-curement on the other. Issues such as sticking to deliv-ery schedule and at the same time avoiding overtime for workers, maintaining higher CSR standards while keeping prices low, and paying a higher minimum wage while keeping prices low.

Supplier code vs. Human Rights–While the pur-pose of these codes is to integrate the basic human rights in the suppliers workforce, it only covers 15 of the 36 Human Rights specified in the International bill of Human Rights. The current practices focus more on the People part of the triple bottom line con-cept, at the cost of environment and economy. And that too not very well!

Multiplicity of suppliers and their sub-suppliers makes the implementation of the code difficult. Often the code stops with the supplier.

Exclusion of SME–current practices exclude SME’s from the supply chain–this when SME’s are the back-bone of the economy.

The future of RSCMThe existing RSCM frameworks depend on the ac-tive assumption of the government’s role in uphold-ing basic human rights like minimum wages, safety and health concerns. Efforts are under way to address these challenges in the adoption of RSCM. The cur-rent RSCM framework has met with resistance and relatively modest success because the onus is on the supplier alone to comply with the high standards set out in the code of conduct. However, the future RSCM will include setting up a “CSR risk free sourc-ing and investment zone” where buyers can invest in or source supplies from any supplier or sub-suppler in that zone. For this to succeed, the government of the supplier’s country has a role to play. The individual country governments have the onus to ensure the tri-ple bottom line approach–people, environment and economy.

Establishment of ‘CSR risk free sourcing and in-vestment zones’ requires the development of local state capacity for the state to become capable of carrying

Coordination DefinedVarious definitions of Supply Chain Co-Ordination can be found. Some of them are:Collaborative working for joint planning, joint product develop-ment, mutual exchange information and integrated information systems, cross coordination on several levels in the companies on the network, long term cooperation and fair sharing of risks and benefits.

A collaborative supply chain simply means that two or more in-dependent companies work jointly to plan to execute supply chain operations with greater success than when acting in isolation.

Continuous coordination, cooperation, and coordination among supply chain partners are imperative for risk avoidance, reduction, management and mitigation such that the value and benefits created are maximized and shared fairly.

Supply chain coordination is a strategic response to the chal-lenges that arise from the dependencies supply chain members.

Supply chain coordination can be defined as identifying inter-dependent supply chain activities between supply chain members and devise mechanisms for manage those interdependencies. It is the measure of extent of implementation of such aggregated coordination mechanisms, which helps in improving the perform-ance of supply chain in the best interests of participating members.

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out the necessary control, monitoring and business development. In addition, to ensuring compliance with local regulations in accordance with internation-al principles, this can be combined with developing and enhancing local authorities’ skills to develop lo-cal business’ (and thus suppliers’) capacity to improve performances, replacing the capacity development buyers engage in today.

What does this translate into?The move to overcome the challenges in RSCM will have a number of fallouts. As India adopts measures to fix the RSCM challenges by creating a nationwide “CSR Risk free sourcing and investment zone” In-dian SME will be able to offer their product to these buyers. The cost of adhering to multiple industry and firm specific codes can be avoided, reducing the cost of compliance. Compliance will be the onus of the lo-cal government body. However, such a code has a flip side to it – the creation of government bodies in India is an invitation to corruption.

Changes to the RSCM will result in buyers and suppliers being able to reduce their cost of compli-

ance, resulting in savings for both. The multiplicity of codes and their individual idiosyncrasies will give way to a more global practice, benefitting the supplier. However the challenge of CSR Vs. low price will con-tinue. What we can get is a release of some resources of the supplier so that they can better manage the tra-ditional SCM demands.

Another major fall out for listed firms will be that, going forward, any hint of business malpractice or lack of CSR of any kind will affect their share prices, like in Apple’s case, the company was not legally respon-sible for what happened at Foxconn. This is a matter of public perception and not legal responsibility. And nothing harms public perception more than a compa-ny ignoring suicides, riots, low wages, underage labor or other such “core violations” at its overseas factories.

Indian suppliers who can integrate the core princi-ples of RSCM into their operations, and focus on the

triple bottom line principle will benefit from substan-tial buyer attractiveness.

Supply chain risk management – the emerging frontierSupply Chain Risk Management (SCRM) is fast emerging as an emerging frontier in the Supply Chain domain. While there have been enormous amount of research devoted to making supply chains more ef-ficient, SCRM has been a relatively recent attention grabber. SCRM is clearly emerging as an important blip on the supply chain manager’s radar.

Companies rely on a chain of vendors, suppliers and service providers to deliver goods and services to meet customer demand. To gain cost advantage and market share, many firms implemented various initiatives such as outsourced manufacturing, Lean Manufacturing, Just -in-time inventory and product variety. These initiatives are effective in a stable envi-ronment and have helped corporate reduce costs and free management time to focus on core competen-cies. But they could also make a supply chain more vulnerable to various types of disruptions caused by uncertain economic cycles, consumer demands, and natural and manmade disasters. These best practices have stretched their supply chain to its limits.

As corporate globalize their supply and distribution chains, that program - from source to destination – is fraught with increasing uncertainties and risks. Risk management practices, techniques and tools have been used extensively in the financial community for years. Risks with respect to a company’s supply chain have begun to receive attention only more recently, as the push to increase supply chain efficiencies has il-luminated the delicate balance between financial con-siderations and those of the customer.

During the last twenty-odd years, supply chain management practices have evolved toward more lean process approaches in order to reduce waste within the overall chain. Concepts such as just-in- time, virtual in-ventory, supplier rationalization, and reductions in the number of distribution facilities have reduced total sup-ply chain costs, but the result has been increased risk.

Trade-offs between achieving optimal supply chain efficiencies and management of supply chain risk has created a dichotomy of sorts. Businesses have wit-nessed many supply chain malfunctions (with often disastrous consequences) due to supply and demand disruptions: the affected companies reported, on aver-age, 14 per cent increase in inventories, 11per cent increase in cost, and 7 per cent decrease in sales in the year following the disruption.

For instance, an additional vulnerability has emerged

Companies rely on a chain of ven-dors, suppliers and service pro-viders to deliver goods and serv-ices to meet customer demand.

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in the supply chain in recent times-catastrophic events such as natural disasters. When the Iceland volcano erupted in 2010, Europe’s air space was shut down by the ash for weeks, disrupting supply chains around the world. The Tsunami in Japan hit Honda sales in India. A fire in an electronics component firm in New Mexico led to Ericsson reporting divisional annual losses of $1.68 billion, a 3 per cent loss of market share, and corporate operating losses of $167 million. Zurich, the insurance group, has tracked more than 1,000 exam-ples in the past five years where companies have quietly suffered because of disruption at a factory producing a critical component, or at a key transport stage.

A survey published by the Business Continuity In-stitute suggested that three-quarters of those surveyed had experienced production hiccups in their supply chain in the previous 12 supply chain months, due to unexpected surprises (ranging from weather to health issues to earthquakes).

Supply chain best practices and risksThe supply chain best practices adopted by companies have led to the introduction of new risks or enhanced the impact of a previously low risk. The trend towards just-in-time and lean practices adopted has led to an in-crease in efficiency rather than effectiveness. The trend towards reducing costs has resulted in the globalization

The Sources of Risk to the supply ChainToday’s supply chains face much vulnerability, including Environ-mental, Network and Organization:n Macro Risks like economic shifts, recession, labor costs, ex-

change rates, customs practices and the like.n Additional regulatory compliance imposed by government

entities, further complicating international traden Competition Risks including uncertainty about competitors’

moves and actionsn Resource Risks like lack of human resources, capital or

technologyn Increased levels of economic uncertainty, which create ad-

ditional variability in demand and supply and make it more difficult to accomplish demand supply balancing

n Shorter product lifecycles and rapid rates of technology change, which increase inventory obsolescence

n Demanding customers who have created additional time-to-market pressures by requiring better on-time delivery, order fill rates and overall service level efficiencies.

n Supply side capacity constraints, making it more difficult to meet demand requirements, and

n Natural disasters and external environmental events, which can wreak havoc on global supply chains.

of supply chains, making them more complex and vul-nerable to disruptions. The trend towards economies of scale has led to the centralized distribution and manu-facturing practices. This has lowered costs but at the same time has made the supply and distribution chains less flexible. The trend towards outsourcing of non-core business activities has led to loss of control of the supply chain when it is most needed. And the trend towards consolidation of suppliers (intentional and incidental mergers and acquisitions) have hugely increased poten-tial for supply failure.

Let us consider some of those vulnerabilities. As companies extend their sourcing and manufacturing ac-tivities all over the globe, the extended supply chain now has additional points of potential failure. And as cus-tomers raise their expectations and technology changes rapidly, companies are pushed into shorter product cy-cles to stay ahead of consumer demands. To add to this, any disturbance in reliability and quality of supply will affect sales and erode loyalty and brand value. In this scheme of things, service becomes a key differentiator. Still, outsourcing solutions, efficient as they may be, can compromise that. And in the rush to optimize supply chains, companies may have removed a few nodes in their supply chain, without realizing that these nodes give it resilience in the face of supply disruptions.

The combined effect of these vulnerabilities is to transform today’s supply chain from a linear, one-way chain to a network of multiple-way relationships— with operational risks in every strand. Risks at any one point will have an impact on multiple other points. What happens on the raw materials side can have a downstream effect on everything else. What happens in manufacturing can have an upstream effect on the supply as well as a downstream effect on distribution and on to the customer, leading to loss of customer confidence and brand erosion.

To understand and manage the risks in this new in-terconnected supply chain, companies need one thing above all: a holistic view of risk across the enterprise. Without that overview of risks, the consequences can be costly. Even devastating.

ConclusionSupply chain managers tend to look at their chains as Robust, Flexible, Agile and Resilient. Flexibility is scheduled or planned adaption to unforeseen yet ex-pected external circumstances. Agility is unplanned and unscheduled adaption to unforeseen and unexpected ex-ternal circumstances. Robustness is the ability to endure changes in the environment without adapting. Resilience is the ability to survive despite withstanding a severe and enduring impact. Different supply chain characteristics

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will result in different ways a supply chain disruption is handled. A resilient supply chain is impacted, but it is able to come back to a stable state, although not neces-sarily to where it was before the disruption.

In business setting, the ability to survive (re-silience) is more important than regaining stabil-ity (robustness). Given the inter-related network of links and nodes, supply chain management without a full understanding of the risks to the enterprise is incomplete. It is no longer enough to manage the sup-ply chain. Only with a risk integrated approach can a company see the interdependencies in the supply chain and understand how a decision in one function may affect adversely the entire organization. The risk capabilities may be stand-alone functions that drive management processes including the supply chain; or they may be institutionalized in some other way.

While companies try to monitor and mitigate the vulnerabilities to its supply chain, there is a note of cau-tion – managers should avoid the classic trap of slotting these risks into silos – Purchase, Manufacturing, Logis-tics and Distribution. The correct way is to take a holistic view of the network, organization and the environment that will enable managers to identify similar risks across the functions and manage them in a uniform way.

But these capabilities must be present. At the same time, supply chain risks are operational risks and can be difficult to quantify or measure. But for any company determined to meet its objectives in a more predictable way—and ultimately enhance revenues— risk man-agement incorporated into supply chain management from top to bottom, across the business is not an op-tion; it’s essential. The real value in SCRM comes from its ability forecast and realize how a disruption in one area may affect the entire firm and its value chain, both on the negative and positive impacts.

To achieve greater competitive advantage, supply chain managers will have to integrate risk adjusted measures to their supply chain management – es-sentially focusing on the weaknesses, while retaining their strengths.

One of the defining parts of the future of Supply Chain Management will be supply chain risk man-agement – not the siloed approach to risk but a trans-parent, holistic look at risks across the enterprise as a whole. And to achieve this, companies need to focus on data aggregation, risk analytics, risk management process, risk reporting and managerial oversight of risk.

Greening The Supply ChainIn today’s competitive world, Green is not about being environment friendly but about better business

sense and profit. Sustainability is one of the key issues that will define the supply chains of the future. We explore the impact of green on supply chain manage-ment, and how green practices can save money, increase efficiency, and reduce delivery time. There is a strong “sustainability” bent to Supply Chains, for example a collaborative logistics (shared truck capacity across even competitors, hub locations outside of major cities from which local deliveries are made, for example) have a great deal of merit and likelihood of occurring.

As environmental sustainability has become an im-portant competitive source, implementing green supply chain management (GSCM) will become a concern for most business organizations. More recently, firms are being increasingly pressured to consider environmental issues in their supply chains. To the extent that inves-tors tend to bring down the prices of firms that do not adhere to the norms of a green supply chain. A growing number of organizations realize that to simultaneously achieve their environmental goals and competitive ad-vantage, they need to manage their supply chain with green initiatives by looking beyond their own facilities.

Building strong collaboration routines with suppli-ers has become a critical factor for implementing and maintaining the green management strategy. Also, green products developed through collaboration be-tween suppliers and manufacturers are a source of sus-tainable competitive advantage. However, some sup-pliers hesitate to comply with green initiatives, because they require a substantial amount of investment. It can be difficult to induce suppliers to make focused invest-ments, because there is a great deal of risk involved. Pre-vious research has also acknowledged the importance of GSCM. However, the structure that enables the firm to develop a good partnership to successfully adopt GSCM is not well researched. Thus, this study address-es the question “how to design governance mechanisms (i.e., formal and relational) between partners to coor-dinate resources and mitigate the risk of opportunistic behavior for green supply management.”

This article tries to define the barriers and challeng-es to driving sustainability improvements through glo-bal supply chains, as well as spotting the opportunities for achieving greater impact through partnerships and capacity-building.

What is green supply chain management? Green supply chain management is the integration of environmental concerns into supply chain man-agement, right from product design, sourcing and selection of raw materials and components, manu-facturing processes, delivery of the final product to the customer and disposal of the product after its

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useful life. Traditionally Supply Chain Management focused on deriving efficiency gains. Green Supply chain management on the other hand integrates the environmental sustainability across all stages of prod-ucts and services in a Supply Chain.

Where is the green in the supply chain?Supply Chain activities create significant carbon emissions, making supply chain an important focus for clients seeking to reduce their carbon footprint. The significant flows between a manufacturer or serv-ice provider and the customer in a supply chain are Product, Process, Service, Information and Capital.

In the design stage of the product, the focus is on identifying better trade-offs between design require-ments and reduced carbon footprint; the tools and practices employed for this, assessing the carbon im-pact throughout the product’s lifecycle, and minimiz-ing them upfront through smart design. In effect, this means designing the product in such a way that it is safe, non-polluting and consumes less energy.

The planning stage focuses on getting the supply chain strategy right through optimizing the total net-work considering service, cost, “Green” tradeoffs, assessing the CO2 impact from various inventory concepts and planning methodologies, and simulta-neously seeking to reduce carbon emission and costs.

The sourcing phase focuses on the supplier’s carbon impact in product, packaging, upstream logistics and choosing the sourcing strategies that will result in a better tradeoff of cost, service levels and carbon emis-

sions. In other words, involving suppliers in the prod-uct design so that they can share their best practices to best align to your strategy of a greener supply chain.

The distribution phase focuses on the facility loca-tions, sizes, transport modes that provides the best trade-off of cost, service and carbon footprint, reduction and recycling of packaging, alternative fuel or power sources and frequency of dispatch and consolidation of routes and loads. Integrating logistics partners while product designs to improve space utilization and effective fleet management and using empty vehicles to collect goods from other sources after delivering finished goods.

In the end of life cycle, using reverse logistics to reduce carbon footprint with better routing and parts inventory tracking, continuous design improvement from service back to product design and engineering and increased reuse, refurbishing, recycling and sec-ondary markets can be tapped. This includes re-use, repair, recycle, remanufacture and redistribution of products at the end of their life. It includes reuse of containers, pallets and package materials.

Drivers of green supply chain managementHaving a green supply chain is no longer an option, but a necessity for all participants in supply chain management. The drivers of GSCM are:

Market Demand: Consumer demand of environ-ment friendly products is increasing. Most people now consider themselves to be environmentally aware and are taking steps to help the environment.

Regulatory pressure: Multiple regulations – from

Responsible Green(Measure, Report, Comply)

n Pursue green sustainability initiatives which focus on regulatory compliance

nCould be either government driven

n... or value chain partner driven

Efficient Green(Engage, Invest, Drive Continuous Improvement)

n Leverage green to identify cost reduction/efficiencies

nCompanies can leverage lean principles to attain this level.

n This should be the base minimum for all companies as there is significant money on the table (both cost and revenue) which can be achieved.

Differentiated Green(Elevate, Build Innovation Capabilities, Integrate Marketing Messages, Manage Tradeoffs)

n Elevate Green Strategy to a crore strategy, and not just a CSR initiative.

nUse the “green lens” through the entire product life cycle, considering the environmental impact through the entire value chain.

n Integrate Green Messaging into brand positioning and messages.

n Manage trade-offs explicitly across growth, cost, sustainability, risk and service.

StageS of green

Source: Booz & Company Analysis

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international Pacts like the Kyoto Protocol, EU Emis-sions trading scheme, Western Regional Climate Action Initiative and more, and a host of new government poli-cies are prohibiting products made from environmen-tally destructive materials and polluting processes. This will radically alter the design of the supply chain.

Economic competitiveness: Adoption of green principles and best practices like recycling, reducing en-ergy consumption etc can significantly reduce the cost and improve operational efficiency. Rising cost and in-creasing demand of fuel is further acting like a stimulus for implementation of green supply chain management.

There is growing awareness among CEOs, COOs and CFOs that the adoption of sustainable best prac-tices will grow profits through lower costs and in-creased competitiveness. The result is the greening of the global supply chain and a focus upon product de-signs that “cost less, mean more.”

Creating a sustainable business not only benefits the planet, but it also impacts people – from employ-ees and consumers to partners and local communities where we do business. Through innovative partner-ships and involvement from a multitude of stakehold-ers, an opportunity emerges to collaborate and spark real change. By evolving the way we view sustainability and breaking away from a narrowed focus on just the environment, we will move closer to a broader defini-tion around the core of corporate responsibility.

The intersection of technology and sustainability - across industries, technology is being utilized to find operation management efficiencies or drive sustain-ability into purchasing practices. These advancements allow companies to look at real-time data on a host of issues, such as carbon and water use, and make imme-diate recommendations that will conserve resources.

Increased focus on our natural resources. The grow-ing global population consumes more food, water and energy. Businesses are competing for fresh water and energy with humans. 70% of water is used for agricul-ture. This means that from an ecosystems perspective, the world is interconnected.

The transition from product life cycles to sustain-able supply chain management and growing awareness

of climate change as a supply chain management con-cern coupled with rapid increase in global demand for energy and material resources will drive the develop-ment of GSCM.

But does the investment in a GSCM make sense? Green supply chain management can deliver a range of business benefits like reduced operational risks such as disruption to supply, increased cost and lack of ac-cess to key raw materials - An example is the Closed Loop Recycling Program – called the G0 Recycling Program focuses on using waste as a substitute for the raw materials required for production. Sony recycles 98% of the waste from its European operations.

This leads to enhanced corporate brand and value, increased customer and consumer confidence and loy-alty. A fall out of which could be the informal or social license to operate within communities, legal systems and governments that otherwise might be antagonis-tic. Creating a sustainable business not only benefits the planet, but it also impacts people – from employ-ees and consumers to partners and local communities where businesses operate.

GSCM can also drive process and product innova-tion. Empowered suppliers look for opportunities to develop sustainable products and services, reducing the product lifecycle, cost and time to market.

Shareholder appreciation and improved valuations- the sustainability accounting standards will establish an understanding of material sustainability issues facing industries and create sustainability accounting stand-ards. The world’s 3000 largest companies face over $2 trillion in liabilities created by their environmental im-pacts. This is equal to 50 percent of their EBITA prof-its. The accounting industry is now exploring how to instruct corporations to report this off-balance sheet li-ability in their filings such as the Form 10-K and 20-F. The growing awareness of this accounting change has begun to influence equity investment analysis.

ConclusionGreen Supply Chain Management is less about the size of the firm and more about how the company is embed-ding sustainability throughout its processes. A trend has begun to make sustainability a part of performance eval-uations in an attempt to drive sustainability throughout an organization. Companies like Intel and Shell link sustainability as a part of their review process. How a company integrates performance management and sus-tainability will help drive large-scale change. By work-ing with key groups, such as human resources, sustain-ability becomes integrated into a company’s culture.

Empowered suppliers look for opportunities to develop sustainable products and services reducing the product lifecycle.


Thanks to global competition, demand situation in the economy is no longer certain. Gone are the days of certainly, longer product

life cycles and low competitive intensity. The overall environment has become dynamic. Demand has become uncertain, product life cycles have shortened, and competition has intensified. In such a situation, firms are increasingly realising that understanding de-mand, planning demand and linking supply with demand pays.

Forecast of future demand is essential for all strategic decisions in the supply chain. If the supply chain begins with a forecast that is substantially in error, in terms of timing or quantity, the ramification will be felt throughout the entire process. This is why forecasting has assumed significant impor-

tance and commitment to it seems to be in-creasing day by day.

Why has demand forecasting acquired such a significant place today? Are forecasts reviewed and agreed upon by key depart-ments in the organisation? Are right statisti-cal methods used in forecasting the demand for the product? What horizons and time periods are used for long-term and short-term forecasting? How are statistical and judgmental considerations to be combined? These are a few questions which need to be answered in order to understand the state of forecasting in Indian companies.

In a study conducted by ISCM, Mum-bai, to understand the practice of forecast-ing in Indian Industries today, we found that the most widely used method is the sales force composite method. Casual and An ISCM White Paper

If the supply chain is designed on forecasting that is substantially in error, the ramification will be felt throughout the entire process.

Predicting Demand In An UncertianWorld

n practice n knowledge n best practice n research n human resource

demand


time series models have given way to rolling plans. With the changing nature of busi-nesses and increasing complexity due to the changing nature of demand, this even where casual and time series models would have been appropriate, information tech-nology based sales force composites were used blindly. Forecasting is not owned yet by any department, and thus a consensual approach is yet to be evolved leading to a budget–driven demand planning.

What these companies probably forgot is that not all demand has become unpre-dictable; there are situations where demand follows a detectable and a predictable pat-tern. While auditing the forecasting proc-

esses of a lifestyle major, we found that for its vacuum cleaners and spare part require-ments, the company used the time series technique. The forecast error used to be so high that they gave up forecasting for an ERP system where sales force composite was converted into rolling forecast, without much success.

To nail the problem we used data from the Colaba market in Mumbai and found that the consumption data shows a strong seasonality; unless we correct seasonal trends and use the appropriate time series technique, we will not be able to forecast demand. Even investment in information system will be of not much help.

Similarly, another company for which we designed a forecasting model, a trac-tor major, has given up the causal method forecastisng and embraced sales force com-posite as the only method even though the accuracy of forecast still remains a major

worry. Tractor demand is closely related to what happens in agriculture sector. We had identified a causal model which was based on drivers of demand for trac-tors and provided a fair guide in planning sales. The company did not kinow how to convert causal forecast into short-term forecasts for better operational planning and thus gave up scientific forecasting for judgmental methods.

On the other hand, Bayer and Syngenta crop sciences have tried to make a differ-ence. Along with their rolling plan it also forecasts the crop scenario for various re-gions. It intelligently uses the sales force to track the changes in cropping pattern, area

under different crops, procurement prices and rainfall. They get disaggregate data for their regional markets. All this information is then used to forecast sales. These quarterly forecasts are then broken into months by ap-plying seasonal factors computed from the monthly rolling plans. Syngenta and Bayer have been able to use causal variable to create a sales force-based forecast which is a good operational forecast.

Forecasting methods and models needs to be applied intelligently today to make fore-cast business significant. Indian firms seem to have lost their direction. Their forecas-tisng methods seem to be dictated by sup-ply chain requirements and the technology with little understanding of when, where and what to forecast and how to forecast. The appropriate choice of a technique de-pends upon the inherent uncertainty in the business environment and the factors which cause this uncertainty.

Forecasting is not owned as yet by any department, and thus a consensual approach is yet to be evolved leading to a budget-driven demand planning.

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A constraint in TOC’s perspective is the entity that limits the glo-bal performance (goal units) of the system. A company is akin

to a system; therefore the constraint is the entity that limits the business performance (sales, profits, etc). Constraint(s) are not to be confused with mundane obstacles; on the contrary, it is highly strategic in nature, to the extent, that if we are able to extract more from the constraint, it directly deliv-ers more money to the company. This is why constraints are termed as ‘leveraging points’ in TOC with a positive connotation.

Stability and growth – the key needsAny organisation has two very important needs for its continued existence – stabil-ity and growth. There has to be a conscious system and culture within the company to accomplish these needs on an ongoing man-ner. All the strategic steps that the company pursues must have its logical link to the above specified needs. However, in practice, it can be observed that many companies are pursuing strategies and supporting ac-tions that are endangering at least one of the needs and thereby actions are in conflict with each other.

TOC advocates a simple yet robust proc-ess of ongoing improvement that eliminates conflict and enables companies to accom-

plish the needs of stability and growth to-gether.

Process of ongoing improvements (POOGI)Step 1: Identify the system’s constraint(s) Step 2: Decide how to exploit (make the

most out of ) the constraint(s) Step 3: Subordinate everything to the above

decisions Step 4: Elevate - find/invest in additional

capacity or alternatives

Prabhakar MahadevanRegional Director - IndiaGoldratt Consulting India Pvt. [email protected]

The context of constraints has been undergoing sweeping changes in the last few decades; the changes were contextually relevant and have been an essential part in the evolution of the theory of constraints (TOC’s) body of knowledge. A look at how it can be applied in the daily ongoings at the shopfloor.

| 38 |

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Evolving context of constraintsThe context of constraints has been undergoing sweeping changes in the last few decades; the changes were contextually relevant and have been an essential part in the evolution of the theory of constraints (TOC’s) body of knowledge. A look at how it can be applied in the daily ongoings at the shopfloor… ■ Prabhakar Mahadevan

Jan/Feb 2012 | EM

A constraint in TOC’s perspective is the entity that limits the global performance (goal units) of the

system. A company is akin to a system; therefore the constraint is the entity that limits the business performance (sales, profits, etc). Constraint(s) are not to be confused with mundane obstacles; on the contrary, it is highly strategic in nature, to the extent, that if we are able to extract more from the constraint, it directly delivers more money to the company. This is why constraints are termed as ‘leveraging points’ in TOC with a positive connotation.

Stability and growth – the key needs

Any organisation has two very important needs for its continued existence – stability and growth. There has to be a conscious system and culture within the company to accomplish these needs on an ongoing manner. All the strategic steps that the company pursues must have its logical link

to the above specified needs. However, in practice, it can be observed that many companies are pursuing strategies and supporting actions that are endangering at least one of the needs and thereby actions are in conflict with each other.

TOC advocates a simple yet robust process of ongoing improvement that eliminates conflict and enables companies to accomplish the needs of stability and growth together.

Process of ongoing improvements (POOGI)

■ identify the system’s constraint(s)■ decide how to exploit (make the most

out of) the constraint(s)■ subordinate everything to the above

decisions■ elevate - find/invest in additional

capacity or alternatives■ if at any time in a previous step a

constraint has been broken go back to Step 1

| 38 | M a n a g e M e n t S t r a t e g i e S

Prabhakar Mahadevan Regional Director - India Goldratt [email protected]

Evolving Context of Constraints

n Practice n knowledge n best Practice n research n huMan resource

back to basics


Step 5: If at any time in a previous step a constraint has been broken go back to Step 1

This above five step focus process can be well understood through a simple ex-ample of mechanical chain (interconnected through links).

The weakest link (identify the constraint) determines the strength of the chain and to improve the overall strength of the chain the weakest link needs to be further strength-

ened (2nd step of the five focusing steps), therefore all actions should be focused upon improving the performance of the weakest link. There can be only one constraint (vital few) in any given system and it is also essen-tial that our actions ensure (by design) that the non-constraint’s (trivial many) only job is to ensure that the constraint is effectively served and not in conflict with it. Applica-tion of the five focusing steps ensures that the constraint’s available capacity is fully exploited (capacity wastages are removed) before capacity enhancement is considered. Further capacity additions are always aligned with increased demand to ensure invest-ments are less risky.

Internal constraintsWhen a production stage (resource/work center) has its available capacity lesser than the demand imposed on it, there is an ac-tive internal constraint. The very first step would be to be aware of such active con-straints. Constraints disrupt flow in the shop floor and causes work in process to pile up, elongates manufacturing lead time and delays shipments to customers. Applying the 2nd step of the five focusing steps, ensures that the constraint capacity is fully exploited (scheduling work orders with correct prior-ity, ensuring bank of work orders before constraint to prevent starvation, ensuring that the constraint is working on the parts that have been verified for quality, planning for manpower during breaks etc) and many times the exploitation step alone releases sig-nificant amount of otherwise masked capaci-ty. The core logic of drum buffer rope (DBR) revolves around controlling the rate at which work is released into the shop floor after aligning the constraint capacity to demand, initiating a shop floor culture that operates as per global priorities (in managing work orders) and putting in place a process that instills the process of ongoing improvement to analyse/improve the causes for deviation.

Customer is the king, market is the constraintDuring the 1990’s and later, situation re-versed from a supplier driven market to a customer driven market, as several suppli-ers entered the fray and customers started

| 38 |

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d th

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F fil

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Evolving context of constraintsThe context of constraints has been undergoing sweeping changes in the last few decades; the changes were contextually relevant and have been an essential part in the evolution of the theory of constraints (TOC’s) body of knowledge. A look at how it can be applied in the daily ongoings at the shopfloor… ■ Prabhakar Mahadevan

Jan/Feb 2012 | EM

A constraint in TOC’s perspective is the entity that limits the global performance (goal units) of the

system. A company is akin to a system; therefore the constraint is the entity that limits the business performance (sales, profits, etc). Constraint(s) are not to be confused with mundane obstacles; on the contrary, it is highly strategic in nature, to the extent, that if we are able to extract more from the constraint, it directly delivers more money to the company. This is why constraints are termed as ‘leveraging points’ in TOC with a positive connotation.

Stability and growth – the key needs

Any organisation has two very important needs for its continued existence – stability and growth. There has to be a conscious system and culture within the company to accomplish these needs on an ongoing manner. All the strategic steps that the company pursues must have its logical link

to the above specified needs. However, in practice, it can be observed that many companies are pursuing strategies and supporting actions that are endangering at least one of the needs and thereby actions are in conflict with each other.

TOC advocates a simple yet robust process of ongoing improvement that eliminates conflict and enables companies to accomplish the needs of stability and growth together.

Process of ongoing improvements (POOGI)

■ identify the system’s constraint(s)■ decide how to exploit (make the most

out of) the constraint(s)■ subordinate everything to the above

decisions■ elevate - find/invest in additional

capacity or alternatives■ if at any time in a previous step a

constraint has been broken go back to Step 1

| 38 | M a n a g e M e n t S t r a t e g i e S

Prabhakar Mahadevan Regional Director - India Goldratt [email protected]

n Practice n knowledge n best Practice n research n huMan resource

back to basics


imposing stringent expectations. In order to secure ongoing business it was evident that merely offering good quality products at the right price were insufficient. It was clear that the companies were compelled to start fo-cusing on how their association would add value to their customers business and started developing their internal capabilities to do it. Realigning the company strategies by basing market as the constraint was the way out.

Now re-applying the TOC’s five focusing steps, with market as the constraint, exploit-ing the constraint (2nd step of the five fo-cusing steps) would mean that the company needs to improve its new customer conversa-tion rates (hit rates) and gaining more busi-

ness share from existing customers. When competition is intense and are at par (in terms of offering the right product, at the right quality, at the right price, etc.) gaining more business would be feasible only when the company is able to fulfill a very impor-tant need of its customer base and that too if the company can stem this capability by streamlining its own operations (core capa-bility). By developing the internal capability to supply on time, by targeting the custom-ers who are desperately in need of it and through effectively marketing the reliabil-ity offer (to the relevant customer base) can fetch the company significant additional on-going business in such markets. It is very im-portant to note that, by subordinating (3rd

step of the five focusing steps) to the market constraint, not only the company needs to undergo several paradigm shifts across many functional silo’s relative to the approach of merely managing internal constraints (where the paradigm shifts needed are mostly within operations), but also gain the ability to in-duce paradigm shifts into the customer’s ways of evaluating suppliers (shift from the cost consideration to value consideration).

Different markets may have different needs and therefore identifying the decisive need and the ways to effectively capitalise upon them may vary based on circumstanc-es. When convincing offers are made that fulfills significant need of the customer, the probability to secure more customer orders are high.

Management attention as the constraintIf we perceive organisations as a pyramid, top management sits right on top of this pyramid. Merely by listing the various tasks that the senior management needs to man-age and oversee versus their available span of attention (capacity) would instantly qualify this to be an active constraint. The com-pany’s performance is a direct derivative of where management is focusing upon and spending most of its energies. Management attention should be prudently put to use (exploitation) and focused to process worthy while things that contributes to both stabil-ity and long term growth of the company. On the contrary, if we dissect the nature of tasks that consume the attention span of a typical management team, it would be hec-tically skewed towards managing the cur-rent operations (stability) rather than future growth. With TOC body of knowledge exponentially expanding in the recent dec-ades, structured methods are now available to deal with management attention; being the most critical constraint, dealing with it automatically aligns the other forms (re-source and market) of constraints. When the management realises where to put its focus and gains the knowhow of how to deal with market and resource constraints, sound business results are a sure shot out-come –stability and growth will get their due proportion of attention as well.

Constraint turning into an abstract entity

Time1980’s 1990’s 2000’s

Gro

wth

and

Sta

bilit

y

Resource

Market

Mgt.Attention


Though the Indian economy experi-enced a slowdown with high inflation in fiscal year 2012,

the FMCG sector was resilient with growth in both sales and profitability. In India, FMCG is characterized by strong MNC as well as Domestic players. There exists an intense competition be-tween organised and unorganised segments and the fight to keep operational costs low. Besides, is-sues such as complex distribution, industry fragmentation and talent development also affect the cor-porate performance. The ever ex-panding middle class population, as well as the rural India, which is home to more than 65% of In-dian population, presents a huge potential for this sector. However, realizing this opportunity requires navigating some complex chal-lenges such as:

n Realizing the FMGC market opportunity in emerging markets like India requires strong distri-

Best Practices FOr Supply Chain ExCEllEnCE

Extracted from Gartner’s research on HUL’s adaptation of 5 best practices for supply chain excellence in India, authored by Vikas Sarangdhar, Director Research – Supply Chain, APAC [email protected]

5bution capabilities, but evolving infrastructure and tax laws pose major challenges. Thus building and maintaining a robust distri-bution network is very critical in India.

n The FMGC market in India has a diverse mix of rural and urban consumers in different stages of evolution and across various income levels. Thus, India’s FMCG market is not homogeneous and requires a differentiated supply chain strategy.

n Unlike developed countries, India’s market has limited penetration of less than 10 per cent of modern trade retail channels (supermarts/hyper-marts). Reaching geographi-cally spread consumers and customers is a challenge for FMGC companies. Consum-er products are sold in India primarily through more than 10 million retail outlets, with 70 per cent of these spread across 640,000 villages.

HUL’s

n Practice n knOwLedge n best practice n researcH n HUman resOUrce

case study


Adapt Network Strat-egy to Suit the MarketServicing India’s large and

diverse consumer/customer base poses a unique network challenge for FMCG companies, and the country’s evolving logistics infra-structure and tax policies create additional complexities. Aligning the network design to various de-mand segments plays a vital role in improving the reach in emerging markets. Research shows leading companies implement a differenti-ated network strategy (warehouse locations/numbers, inventory poli-cies, logistics mode, distribution frequency) for each of their seg-mented supply chains.

HUL has identified network strategy as a critical competency to succeed in emerging markets, and it has optimized network for its pre-mium (service), popular (reliability) and mass (cost) segments by work-

drivers as volume, volatility and gross margins. Based on these consumer/customer segments and drivers, HUL has segmented its supply chains into “agile” for the premium segment (focusing on availability), “lean” for mass mar-kets (focusing on cost) and “op-timum” for the popular segment (focusing on reliability and cost-service trade-off).

Additionally, HUL has lever-aged technology to determine opportunity presented by an in-dividual village or town by map-ping its potential market, using IT and motivating trading partners to electronically capture real-time sales data. It has also implemented an innovative go-to-market strat-egy called “Shakti” under which local enterprenuers are encouraged to distribute smaller pack sizes of HUL products improving HUL’s rural reach.

38

n In India, several global and local companies compete fiercely for maket share. This, coupled with a signifi-cant economic growth offers ample job oppurtunities for top talent. Ability to retain such talent is a challenge for FMCG companies.

HUL’s journey of supply chain excellence is best captured in five best practices that it has mastered while building a leading position in India’s market. These best prac-tices reinforce each other and help the company understand customer value and make conscious trade-offs across demand, supply and product cycles to deliver profitable supply response.

Leveraging the five best practic-es, the company has built its strate-gy on innovation, demand shaping, network reach, operational per-formance and talent management. The strategy has helped it sustain robust growth during the last dec-ade. These best practices with some examples are explained below.

Start with the Consumer/Customer in Front

India has a “bullock cart to busi-ness class” economy, with consum-ers at various income and evolution levels (preferences/lifestyles), spread across rural and urban areas. Most retail trade happens through mom-and-pop stores across 50 major cit-ies and more than 640,000 villages. Recent changes in foreign direct investment policy have given im-petus to the modern trade format of supermarts/hypermarts. FMCG companies need to understand these different consumer/customer segments to create a profitable and differentiated supply response.

HUL in India has Grouped de-mand in three distinct segments: “premium,” “popular” and “mass,” and it has identified supply chain

12

Five Best Practices HUL has Mastered

Start with the consumer/ customer in Front

Adapt Network Strategy to Suit the MarketManage Talent

Skillfully

Excel in Operational Execution Strengthen NPI, Foster

Innovation

case study


ing on critical aspects like size of the vehicle, frequency of travel and mass route planning, as well as rationaliz-ing distribution centres, warehouse locations and travel distances.

HUL services more than half of the mass segment customers di-rectly from the factory. Further, it has maintained more than 90 per cent service levels while reducing inventory levels by 25 per cent for this segment. In the premium seg-ment, HUL distributes products only through one warehouse in the country and has achieved service levels that exceed 95 per cent de-spite reducing inventory by half. Overall, supply chain segmentation

and aligned network strategy have helped HUL triple its reach during last three years.

Strengthen NPI and Foster InnovationUnlike developed coun-

tries, India’s FMCG industry is fragmented, with many global and local players competing fiercely for market share and making NPI a critical capability to stay ahead in consumers’ mind share. In addi-tion, complex supply and distribu-tion networks demand much closer coordination within and across en-terprises to ensure efficient capture of consumer/customer voice and minimization of waste/delays dur-ing new product launch.

HUL has internalized a five-stage product/process innovation strategy with milestones like idea, feasibility, capability, deploy and launch evalu-ation. HUL works aggressively with

its trading partners to build an “in-novation funnel,” which is driven through aligned metrics, governed by strong cross-functional reviews and supported by an HUL manage-ment committee. The results have been quite exemplary, with reduc-tions in cost and lead time.

Excel in Operational ExecutionA fragmented retail indus-

try, longer distribution chains and greater consumer diversity often cre-ate a challenge for responding to de-mand in India. This calls for excel-lent collaboration, not only within FMCG companies but also with

their trading partners to synchro-nize decision making and trade-offs across such complex supply chains.

FMCG companies operating in India also face the headwinds of rising commodity, fuel and la-bour costs, which is a key feature of emerging markets. Research shows that FMCG companies working with their suppliers and distributors to drive down cost and improve asset utilization across the supply chain are building a leading position in these markets. Moreover, in rapid-growth mar-kets, capacities and resources often fall short, and managing relation-ships with critical trading partners becomes important for delivering profitable supply response.

HUL has implemented a mul-tipronged strategy to respond to these challenges. It has institu-tionalized a strong, multi-horizon S&OP process. Additionally, HUL

has launched a “partner to win” ini-tiative to enhance its supplier per-formance through collaboration. At its own manufacturing facilities, HUL is driving cross-functional programs for manufacturing excel-lence, productivity and reliability improvement, and batch size and inventory reduction.

Manage Talent SkillfullyCompanies operating in emerging markets often

struggle to acquire talent with the right skills. In addition, dynam-ics of emerging markets demand that talent should be capable as well as adaptable, making the process of building capabilities vital for success.

The talent challenge in India does not end at recruitment and development. With ample oppor-tunities in the region, the bigger challenge is to retain this trained talent. Companies must have a judicious mix of short-term incen-tives and long-term development opportunities to keep the talent engaged. To retain top talent, pre-ferred employers use a variety of strategies, such as capability-build-ing, culture of high performance and collaboration, flexible work hours, multidimensional growth, and global assignments.

HUL has deployed talent man-agement process in India that iden-tifies talent as a key differentiator and has established an 18-month cross-functional induction pro-gram for its new talent. Clear met-rics, sharper differentiation of top performers and continuous capa-bility development at all levels help HUL retain top talent.

While HUL has excelled its sup-ply chain response by mastering these best practices in India’s busi-ness environment, supply chain leaders from FMCG companies worldwide may find these practices useful in other emerging as well as developed markets.

Companies must have a judicious mix of short-term incentives and long-term development opportunities to keep the talent engaged.

3

4 5

Auto

A New Roadmap for the Auto Industry

This article is written by Dr. Javad Feiz Abadi, Assistant Professor, Director Research, Malaysia Institute for Supply Chain Innovation. For more information on the article and the auto industry research at MISI, contact the author.



Auto


Auto manufacturing is commonly described as a “mature” indus-try, yet it is under-

going dramatic change in terms of product and market leadership, technology, and the geography of production. Asia is at the center of these changes. In response, the Ma-laysia Institute for Supply Chain Innovation (MISI) plans to launch a dedicated research initiative to understand the supply chain impli-cations of the auto industry’s trans-formation.

Innovations such as the Toyota Production System have shaped auto manufacturing across the globe. Now, the business is mov-ing into a new evolutionary phase where Asian automakers, driven in part by the transfer of know-how from established players in the West, will lead the way in critical areas such as manufacturing inno-vation. The Economist Intelligence Unit (EIU) estimates that in the

(4). The growth rate of the auto market until 2014 in top markets is estimated as: China (4.7per cent), Eastern Europe (2.1 per cent), South America (1.9 per cent), and the rest of Asia (5.7 per cent).

Rising consumer-buying power in the Asia-Pacific region is one of the main drivers of this demand. Emerging markets are expected to account for 84 per cent of the increase in car purchases over the next decade, with China alone contributing 25 per cent. The lack of a substitute product along with poor public transportation sys-tems in many parts of the world also will contribute to the upsurge in car sales.

The pattern of demand is changing as well. Buyers are mov-ing away from high-emission cars toward low- or zero-emission ve-hicles, prompted largely by recent hikes in the price of fuel. Comple-

mentary developments in fuel cells, hybrid cars, batteries, solar energy, and compressed natural

next five years, one out of every two cars will be produced in Asia.

Asian countries offer a relative-ly stable base for these advances at a time when the rest of the world –especially western countries–is in economic turmoil. A recent report from the EIU projects that the ASEAN region will achieve an an-nual average growth rate of 6.3 per cent until 2016.

How will the auto industry change in light of these trends, and what will be the role of supply chain management going forward? First, let’s look at the demand side.

The World Watch Institute es-timates that the global automotive fleet increased from 50 million units in 1950 to over 550 million vehicles in 2004, and is projected to exceed 50 billion vehicles by 2050.

According to the EIU, the number of vehicles per 1,000 in-habitants in certain key markets is as follows: United States (453), Japan (423), India (7), and China

The World Watch Institute estimates that the global automotive fleet increased from 50 million units in 1950 to over 550 million vehicles in 2004, and is projected to exceed 50 billion vehicles by 2050.

The automotive industry is moving into a new evolutionary phase where Asian automakers with transfer of know-how from established player will had the way.


Auto


lion units. India is also a major player. The country has the world’s second-largest forging company, and excels as a supplier of compo-nents owing to its low overheads and labor costs. India offers a 20 per cent to 30 per cent cost ad-vantage over US competitors and a margin of some 36 per cent com-pared to 13 per cent in peer coun-tries. It also is worth noting that

new models and introduced price cuts to sustain sales growth and market share.

A number of other factors have impacted supply in the auto indus-try; the most notable ones are listed below.

Redrawn production map In 2010, China’s annual auto pro-duction capacity reached 3.5 mil-

gas technology also will impact fu-ture buying decisions.

The supply-side picture is equally as complicated. An excess of manufacturing capacity result-ing from the industry’s expansion in the 2000-to-2006 time period caused downstream pricing pres-sures and market share erosion. In the face of these competitive threats, manufacturers launched

Auto


most battery suppliers are located in Asia.

Mega suppliers Traditionally, tier-one suppliers are at the apex of the supply pyr-amid. Today, these top vendors have been joined by a new class of larger vendors: the 0.5 supplier. These are large multinational com-panies with a significant presence

in Asia. Since content from sup-pliers accounts for more than 60 per cent of the manufacturing cost per vehicle, and this figure is pro-jected to reach 75 per cent within the next five years, the emergence of larger suppliers could have a sig-nificant impact on supply chains.

Accelerated innovation. In the past, the auto industry changed at a relatively slow pace, but that is no longer the case. Car develop-ment cycle times have shrunk from 48 months in 1994 to 24 months in 2012. Moreover, since 1990 the average life span of a car model in developed countries has halved to just four years. Lighter cars made of low-weight composites and ad-vances in telematics are examples of innovations in the pipeline.

The end of consolidation? Some analysts believe that increasing demand for small, fuel-efficient cars will reverse the consolidation trend that has characterized the industry over recent decades and lead to more fragmentation. This, in turn, could reconfigure the sup-ply picture.

The supply chain management implications of these changes are far-reaching. Here are some general observations.n To cope with regulatory and

market uncertainty, a tightly inte-grated supply chain will be essen-tial to address future challenges in the auto supply network.

SKU proliferation could force the industry to shift away from a build-to-stock and toward a build-

The bottom line is that isolated procurement systems will work for some companies, particularly those that effectively adapt their workforce and purchasing.

to-order supply network. In other words, the focus will shift from economy of scale to economy of scope.n The involvement of strong

suppliers (i.e., the technology owner responsible for a significant portion of the value-added activi-ties) in automobile production will require new operating procedures, methods, and mindsets. Manufac-turers will have to manage a strong-er supplier base without compro-mising the tight integration of the supply chain.n Developments in key areas

such as battery and fuel technolo-gies will require automakers to find effective ways to integrate emerg-ing suppliers into the auto design process and into supporting supply networks. These powerful players are likely to change the industry’s clock-speed, and automakers must have a plan to deal with them. An-other threat posed by these entrants is their ability to create new mar-kets and competitors.n Global supply networks will

have to be realigned as manufac-turers in the Asia-Pacific region be-come more dominant. At the same time, these regions will be the new markets for cars.

The rules that have guided the auto industry for many decades are now being rewritten. Supply chain management is at the forefront of these changes, giving the profession a crucial role in redefining the in-dustry and helping automakers to make the transition.


talent

45

Logistics industry needs is ‘recognized & standardized vocational training’; in operational level and Senior Management practitioners who are sensitized to India specific challenges.

forwarders essentially operate by generating business from the lo-cal market.

The needs of companies in-volved in Contract Logistics are different. Contract Logistics com-panies are more concerned about lack of ‘infrastructure’ rather than lack of ‘talent’.

Manufacturing companies hav-ing their supply chain departments yet have other ‘people issues’.

Some of the basic issues on manpower in Supply Chain sector are:nLack of trained and skilled

manpower to ‘operate’ the business.

n Lack of Senior Manage-ment practitioners who are ‘India centric’.

We are living in a world of ‘econom-ic uncertainties’. Manufacturing ac-

tivity across the world has taken a beating. Therefore it is imperative that the logistics business (which essentially is a service provider) will feel the impact of the down-turn as well.

What is this impact!‘Pundits’ so conviently tend to generalize industry and their needs. In reality there is a consid-erable gap in the requirement of organizations within the indus-try. For e.g. most of the freight forwarding companies in India operate on ‘nominated business’ from overseas; other local freight

supply chain india TalenT on DemanD

Parvej JokhiHead Organization Development and HR, Dascher India Private Limited.


talent


By this, what we are referring to is the lack of ‘operational staff’ at the southern end of the organi-zational chart who collect and process documents, route, load and unload shipments, and pos-sibly assist in Custom Clearance.

There is a dearth of structured vocational training at this end of the spectrum–although begin-nings have been made by various ‘institutes’ across the country.

However, they are still far and fragmented and therefore do not subscribe to any laid down stand-ard at a national level.

The option therefore for com-panies is to poach trained man-power other organizations from within the industry.

The industry therefore is the largest vocational training ground for aspirants at this level.

At the Senior Management Level, the issues the industry face is insufficient knowledge of India centric problems. The bright post graduate managers from any good institute do posses sound theoreti-cal knowledge but are unable to cope with the lack of infrastruc-ture in India. A less than adequate road and rail facility, inefficient and bureaucratic agencies, and inadequate loading and unload-ing infrastructure compounded with requirement of the Indian ‘price sensitive ‘customer; calls for a different set of competencies at

senior management level to han-dle such issues, some of which are quite unique to India.

Another major hurdle the in-dustry faces is due to its unique positioning. Being neither in the manufacturing or trading sector, most individuals spend their en-tire work life in the same industry. This has then led to a rather inces-tuous pattern of thinking, making it difficult to absorb best practices from any other industry.

A number of Logistics compa-nies have started indigenous ‘de-velopment programs’ for their em-ployees, to facilitate retention of trained manpower, some also have Management Trainee programs to development raw bright talent.

The organizations that manage to keep a low attrition are those who: n Are ‘people sensitive’ spe-

cially at the lower end of the spectrum.

n Build a learning organiza-tion.

n Work with a ‘strategic plan’ rather than merely go with the market flow, as this pre-vents a headcount yo-yo, and gives employees a sense of security.

n Have sound H.R. practice, relevant to the needs of the location.

What the industry needs is ‘rec-ognized & standardized vocational training’; and Senior Management practitioners who are sensitized to India specific challenges, and the willingness to give up the paranoia of hiring, non -industry ‘functional managers’, who when hired could continue to bring best practices from across industry to Logistics.

The bright post graduate managers from any goodinstitute do posses sound theoreticalknowledge but are unable to cope with the lack of infrastructure in India.

skills


Career Transition in the AccelerAted evolution i n o u t p l A c e m e n t

By Darryl Judd, COO, Logistics Executive, [email protected]

skills

48 SCMPr February 2013 48

In the world of accelerated change, small investments are bringing big benefits to employers in Career Transition and Outplacement writes Darryl Judd.

ductivity will be essential but by itself, is simply not enough for fu-ture success.

The Only Constant is ChangeAccording to Ruthven “The world of business is changing at a faster, more threatening, yet more oppor-tunistic pace than most of us have ever experienced” and that this will continue at increasing pace. He as-serts that the modern employment environment will by necessity be increasingly more flexible, typified by more freedom from businesses, bosses and unions, the gradual demise of the concept of an “em-ployee”, rise of contractual rela-tionships, payment for outputs not inputs (hours of work), emergence of advisers and mentors for worker contracts, the rise of business own-ership (workers owning a busi-ness), no discrimination on any basis (gender, race, age etc.), more part-time and casual work, more of us working from home, more working seasons in a lifetime, new industries & occupations, working in a borderless world, expansion of the knowledge worker concept, lifetime education & training and rising wages & salaries.

Many of the Supply Chain and Logistics industry’s most success-ful organizations have realized that the contemporary business and employment environment requires far more flexibility and innovation than in previous years. As outlined in a recent article for the Austral-ian Supply Cain Review magazine’s 2012 Career and Salary Guide, we have seen a significant increase in

Phil Ruthven IBIS World Chairman and one of Asia’s most respected eco-nomic researchers and

commentators recently delivered an insightful and though provok-ing presentation to Sydney Sup-ply Chain senior executives on the Global Economic Outlook, Supply Chain, Productivity, Business Suc-cess and Employment Markets.

The presentation provided ex-cellent research data supporting the view that whilst acknowledging challenges in Japane, US and Eu-rope, that the current global eco-nomic outlook is much stronger than many politicians and media commentators would have us be-lieve. He shows that Asia Pacific is growing to such an extent that it is predicted to overtake North Amer-ica and Europe in Gross Domestic Profit by 2017. China as the an-chor, despite its recent slowdown, is still expected to grow to be 57 per cent of Asia Pacific region’s GDP by 2017 followed by Hong Kong, which adds 1.3 per cent and Australia, at 3.4 per cent.

Ruthven highlighted the major impact of online buying reducing prices for B2B as well as B2C, in the case of B2C, online having a greater impact than the self service revolution of the 1960s, pressures extending up the supply chain to the primary sector and importers, the importance of logistics and the new digital era (cognitive software, analytics and fast broadband) au-tomation and innovation. Impor-tantly for employer, he underlines the view that improved labor pro-

demand for candidates with busi-ness improvement/transformation, performance enhancement skills including lean and six sigma expe-rience as customer demands and competitive pressures dictate the requirement for improved com-mercial outcomes.

Many of our clients have un-dertaken major transformations to lower overheads and tighten up their processes and the key to the success of many has been their abil-ity to increase workforce agility.

A more agile and flexible work-force model provides capability to deploy staff rapidly within / across business units to meet dynamic business requirements in a fast changing economic environment.

Employee Mobility AcceleratesConcurrently, employees are be-coming more mobile and are transitioning across, in and out of companies at a much faster rate. This trend to greater mobility set to increase as dynamic workforce change is increasingly considered the norm.

To keep up with these changes professional “Outplacement, or “Career Transition” services have gone through a considerable trans-formation and repackaging.

Whereas historically “Career Transition” often signaled the end of an employee’s career, there is a growing trend that the process of Outplacement/Career Transition is becoming the enabler that provides the platform to a new phase of one’s working life as never before.

skills


and protecting their corporate image through traditional adver-tising and promotion, however, more organizations realize the value of social networking and word of mouth during times of restructure and realignment and understand that transitioning people out of their businesses in professional, positive manner has genuine benefits.

The management of transition-ing employees plays an important part in shaping the brand and the culture of a company.

In the 20 years that I have been involved in providing professional career transition services, I have no-ticed that the remaining staff takes significant notice of how their de-parting colleagues are treated. This

can significantly impact on morale and an organization’s value propo-sition internally and externally im-pacting on staff satisfaction, pro-ductivity and reputation.

Barriers to investing in career transition services are: n Lack of budgetn Inability to link to cost savingsn Deemed as not necessary andn Lack of urgency by decision

makers

Employee Engagement and Bottom Line Benefits of Pro-fessional Career TransitionBeing corporately responsible and ‘doing the right thing’ by employees is often enough rea-

son for many executives to take this route. The good news is that research shows that it also makes economic sense.

It is widely held that organiza-tions utilizing professional career transition services, which may only involve an investment of a few thousand dollars: n Are 25 per cent less likely to be

faced with separation related litigation

n Send a powerful message to the rest of the organization and community that they value people

n Protect image and reputation internally and externally

n Reinforce or raise their employ-er of choice credentials

n Increase the likelihood of im-proved productivity amongst retained staff

n Are more likely to increase profits

At a time when a key element of competitive advantage is employee engagement and retention of those within the organization’s talent pool, research shows that one of the greatest benefits of providing career transition services is a significant increase in employee engagement.

One of the greatest direct ben-efits of improved employee engage-ment is the link between the value of referrals provided by these em-ployees during recruitment for new staff, reducing the recruitment cy-cle, and cost per hire.

With traditional “outplace-ment” becoming more about career transitioning, there is an incredible richness that can be derived by cre-ating an environment of employee engagement from this accelerated time of change. It is an opportu-nity to take stock, reevaluate once the restrictions of a set career have been temporarily lifted and find our true direction.

Opportunity knocks when we least expect it, as they say.

Increased DemandThe demand for Outplacement and Career Transition services has dramatically increased in re-cent years as Company’s recog-nize the importance and benefits of managing employer brands. Supporting this is the tangible benefits brought to an employee of a professional Career Transi-tion program: a safe environment in which to discuss the emotional impact of losing a job, the oppor-tunity to engage in career analy-sis, a detailed understanding of strengths, interests, personality and aspirations, expert advice on resumes, one on one coaching to interview skills, networking as-sistance and project management of the job search.

Whilst an increasing number of organizations see providing profes-sional career transition services as part of their corporate responsibility mandate, there is an overwhelming commercial logic for ensuring those departing an organization receive professional support.

Protecting Your Employer BrandOne of the key factors driving this demand has been the realization by senior executive’s of the link between professional career tran-sition and the importance of Em-ployer Brand.

Most companies spend con-siderable sums of money building

The management of transitioning employees plays an important part in shaping the brand and the culture of a company.

books

50The Future

of Supply Chain




February 2013

A practical guide on business forecasting and demand planning, the book provides an insight on science and art of forecasting in a very simple language says Girish. V.S.

Writing a review of a book on Business Forecasting & Demand Planning is a challenging task

whichever way you look at it. A book on practical business forecasting belongs in the library of everyone interested in business. Fore-casting is extremely important to sales, opera-tions, finance and accounting executives, busi-ness economists and managers at all levels.

But to review a book where statistical techniques that you learn in college meets business needs that you wrestle with every day requires courage.

The first impression: There are books on forecasting and demand planning and there is this slim, lucidly written book on Business Forecasting & Demand Planning. The first thing that struck me was the simplicity of the book – you do not need to be an MSc in sta-tistics to understand this book. The other is the clear layout – no fuss, no jazz – just a min-imalist, Spartan approach that focuses on the topic, without distracting the reader. A must for any book that includes statistical concepts!

Business Forecasting & Demand Planning emphasizes the practical applications of eco-nomic forecasting in everyday situations. A wide-range of readers, with only a familiarity with basic statistics will find it an easy guide to follow. The text focuses on the use of models in forecasting, explaining how to build practical forecasting models that produce the best results under the given set of business constraints.

This book presents, in a straightforward, application-driven manner, the basic statis-tical techniques necessary for preparing in-dividual business forecasts and long-range plans. The emphasis is on the application of techniques by management for decision-making.

The coverage: The book is divided into seven chapters. Beginning with the focus on providing the reader with the key con-cepts of forecasting, like the need and pur-pose of forecasting, the role of forecasting in management decisions and a few tips on forecasting steps, the book handholds the reader through the business side of a very complex subject.

This is followed by an over view of Time Series – including concepts like level, trend and seasonality, the essential characteristics of time series data, static and dynamic meth-ods and the significance of trend, seasonal-ity factors in Holt’s and Winter’s model. The book naturally progresses to examine the concept of Causal Forecasting – where the user can forecast a result, if the under-lying cause and effect relationships are un-derstood. From a mere understanding of the cause and effect relationships, the book progresses to the judgmental or qualitative forecasting, where the managers expertise and judgment is brought into play. The book is a definitive guide to the concepts like fore-casting errors, the data conundrum – where do we get the data we need and is the data we have adequate, and finally, how do we choose the right model for our business.

Replete with practical business applica-tion and data sets that can be used by the reader to practice the concepts, the book is an easy companion to the manager who wishes to use the power of forecasting, while at the same time trying to avoid the pitfalls of failed forecasts.

The authors explain the basic forecasting methodology and the practical applications. All aspects of business are discussed, making this a comprehensive and valuable reference.

business Forecasting and demand Planning

A Guide for Minimising Error

By Rakesh singh, Chairman ISCM and Vaidyanathan Jayaraman, Prof. of SCM, Miami University.

Publisher: New Book Review PublishingPages: 161Price: `550/-

www.scmp.in

...live supply chain

Industry Portal for the Supply Chain Professional

402, Durga Chambers, Plot No A-8, Veera Industrial Estate, Veera Desai Road,

Andheri-West, Mumbai-400 053, India. Ph: +91 22 40166593

Email: [email protected]

Hormann India Pvt. Ltd

H rmann offers a complete programme.

For the home...

Automatic garage doors, entrance doors, internal doors,

security doors, fire doors, smoke-tight doors & multi-purpose doors.

Over 50 years of H rmann experience is integrated into each

and every product.

For industrial and commercial applications...

H rmann sectional doors, rolling shutters, fire doors,

security doors, multi-purpose doors, loading technology

and high-speed doors. H rmann is the only manufacturer

world-wide that offers you doors, operators and loading

technology from one source.

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www.hormann.in

scmpr - logistics executivegirish v s executive editor. 6 scmpr february 2013 contents february 2013...

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