Very Important Notice
Very Important Notice
Very Important Notice
A PROJECT REPORT ON
SUBMITTED
BY
PRAMOD B. PATIL
JBIMS,Mumbai
JBIMS,
Address of Guide:
Tel. No.:
ACKNOWLEDGEMENT
The satiation and euphoria that accompanied the successful completion of the project
would be incomplete without the mention of the people who made it possible. So within
immense gratitude, I acknowledge all those whose guidance and encouragement
crowned my efforts with success.
I sincerely thank, Prof. Rambabu for being excellent project guide to me. Despite his
demanding schedule, he made all possible resources available and gave the much needed
direction, and inputs to me at various stages of the project.
CONTENTS
1. INTRODUCTION OF SCM……………………………………………….. 1
CONTENTS
6. Conclusion ………………………………………………………………..
REFERENCES ……………………………………………………………..
1. INTRODUCTION
The post-World War II supply chain was a set of linear, individualized processes that
linked manufacturers, warehouses, wholesalers, retailers and consumers together in the
form of a human/paper chain. "People and paper physically connected all of the tiers of
the chain together," which often created miscommunication between the front- and back-
end processes. The syncing of procurement, demand planning and forecasting, inventory
management, shipping and tracking was far from a definitive science. However, as
manufacturing and economic growth flourished during the 1950s, there developed a
greater interest in the need for SCM.
The 1960s saw the birth of the first inventory management software systems, which
were typically customized, to aid inventory control in the manufacturing sector.
In the 1970s, SCM innovations brought forth Material Requirements Planning (MRP) –
a system that phases out the release of production and purchase orders to ensure that the
flow of raw materials and in-process inventories matches the manufacturer's production
schedules for finished products.
In 1988, SCM took a significant leap of its own. Sanjiv Sidhu, founder of Dallas, Texas-
based i2 Technologies and a former artificial intelligence expert with Texas Instruments,
developed a new breed of software that was based upon the "theory of constraints."
Sidhu's product would allow a "company's factories (to) communicate internally, with
each other, and with headquarters to improve the flow of materials and orders."
By 1997, this software had become Internet-enabled. Other firms have since developed
expertise in either specific industries, such as consumer goods and process industries, or
very specific niches of the supply chain, such as execution and tracking.
SCM has taken on additional names, such as business-to-business or B2B. Its processes
and capabilities have also allowed for more focused, "one-on-one" extensions – namely
exchanges. An exchange is a two-sided marketplace where buyers and suppliers
negotiate prices and fulfill online transactions between one another and are either private
or public. For example, a private exchange would involve Company a selling widgets to
Company B, meeting together on a secure web site to place and fulfill orders exclusively
and by invitation only; a public exchange is more of an auction or bidding place for pre-
qualified subscribers or members.
Discussing the shape of the future, Forrester (1958, p. 52) proposed that after a period of
research and development involving basic analytic techniques, “there will come general
recognition of the advantage enjoyed by the pioneering management who have been the
first to improve their understanding of the interrelationships between separate company
functions and between the company and its markets, its industry, and the national
economy.” Though his article is more than forty years old,
It appears that Forrester identified key management issues and illustrated the dynamics
of factors associated with the phenomenon referred to in contemporary business
literature as Supply Chain Management (SCM).
The term supply chain management has risen to prominence over the past ten years
(Cooper et al. 1997). For example, at the 1995 Annual Conference of the Council of
Logistics Management, 13.5% of the concurrent session titles contained the words
“supply chain.” At the 1997 conference, just two years later, the number of sessions
containing the term rose to 22.4%. Moreover, the term is frequently used to describe
executive responsibilities in corporations (La Londe 1997). SCM has become such
a “hot topic” that it is difficult to pick up a periodical on manufacturing, distribution,
marketing, customer management, or transportation without seeing an article about SCM
or SCM-related topics (Ross 1998).
There are many reasons for the popularity of the concept. Specific drivers may be traced
to trends in global sourcing, an emphasis on time and quality-based competition, and
their respective contributions to greater environmental uncertainty. Corporations have
turned increasingly to global sources for their supplies. This globalization of supply has
forced companies to look for more effective ways to coordinate the flow of materials
into and out of the company. Key to such coordination is an orientation toward closer
Despite the popularity of the term Supply Chain Management, both in academia and
practice, there remains considerable confusion as to its meaning. Some authors define
SCM in operational terms involving the flow of materials and products, some view it as
a management philosophy, and some view it in terms of a management process (Tyndall
et al. 1998). Authors have even conceptualized SCM differently within the same article:
as a form of integrated system between vertical integration and separate identities on one
hand, and as a management philosophy on the other hand (Cooper and Ellram 1993).
Such ambiguity suggests a need to examine the phenomena of SCM more closely in
order to clearly define the term and concept, to identify those factors that contribute to
effective SCM, and to suggest how the adoption of a SCM approach can affect corporate
strategy and performance. The purpose of this paper is to examine the existing research
in an effort to understand the concept of “supply chain management.” Various
definitions of SCM and “supply chain” are reviewed, categorized, and synthesized.
Definitions of supporting constructs of SCM and a framework are then offered to
establish a consistent means to conceptualize SCM. Antecedents and consequences of
SCM are identified, and the boundaries of SCM in terms of business functions and
organizations are proposed. A conceptual model and definition of SCM are then
presented that indicate the nature, antecedents, and
consequences of the phenomena. The model is accompanied by a series of managerial
and research implications.
It has been noted that discussions of SCM often use complicated terminology, thus
limiting management’s understanding of the concept and its effectiveness for practical
application (Ross 1998).
This section is, thus, dedicated to reviewing, classifying, and synthesizing some of the
widely-used definitions of “supply chain” and “supply chain management” in both
academia and practice. The goal of this discussion is the development of one,
comprehensive definition upon which managers and future researchers can build.
The definition of “supply chain” seems to be more common across authors than the
definition of “supply chain management” (Cooper and Ellram 1993; La Londe and
Masters 1994; Lambert, Stock, and Ellram 1998). La Londe and Masters proposed
Supply Chain Management in Indian FMCG Industry
Supply Chain Management
that a supply chain is a set of firms that pass materials forward. Normally, several
independent firms are involved in manufacturing a product and placing it in the hands
of the end user in a supply chain—raw material and component producers, product
assemblers, wholesalers, retailer merchants and transportation companies are all
members of a supply chain (La Londe and Masters 1994). By the same token,
Lambert, Stock, and Ellram define a supply chain as the alignment of firms that brings
products or services to market. Note that these concepts of supply chain include the
final consumer as part of the supply chain.
Another definition notes a supply chain is the network of organizations that are
involved, through upstream and downstream linkages, in the different processes and
activities that produce value in the form of products and services delivered to the
ultimate consumer (Christopher 1992). In other words, a supply chain consists of
multiple firms, both upstream (i.e., supply) and downstream (i.e., distribution), and
the ultimate consumer.
Given these definitions, for the purposes of this paper, a supply chain is defined as a
set of three or more entities (organizations or individuals) directly involved in the
upstream and downstream flows of products, services, finances, and/or information
from a source to a customer.
Encompassed within this definition, we can identify three degrees of supply chain
complexity: a “direct supply chain,” an “extended supply chain,” and an “ultimate
supply chain.” A direct supply chain consists of a company, a supplier, and a
customer involved in the upstream and/or downstream flows of products, services,
finances, and/or information (Figure 1a). An extended supply chain includes suppliers
of the immediate supplier and customers of the immediate customer, all involved in
the upstream and/or downstream flows of products, services, finances, and/or
information (Figure 1b). An ultimate supply chain includes all the organizations
involved in all the upstream and downstream flows of products, services, finances,
and information from the ultimate supplier to the ultimate customer.
Figure 1c illustrates the complexity that ultimate supply chains can reach. In this
example, a third party financial provider may be providing financing, assuming some
of the risk, and offering financial advice; a third party logistics (3PL) provider is
performing the logistics activities between two of the companies; and a market
research firm is providing information about the ultimate customer to a company well
back up the supply chain. This very briefly illustrates some of the many functions that
complex supply chains can and do perform.
Although we will address this point in greater depth later in this paper, it is important
to realize that implicit within these definitions is the fact that supply chains exist
whether they are managed or not. If none of the organizations in Figure 2 actively
implements any of the concepts discussed in this paper to manage the supply chain,
the supply chain—as a phenomenon of business—still exists. Thus, we draw a
definite distinction between supply chains as phenomena that exist in business and
the management of those supply chains. The former is simply something that exists
(often also referred to as distribution channels), while the latter requires overt
management efforts by the organizations within the supply chain.
Note also that within our definition of supply chain, the final consumer is considered
a member of the supply chain. This point is important because it recognizes that
retailers such as Wal-Mart can be part of the upstream and downstream flows that
constitute a supply chain.
Although definitions of SCM differ across authors (see Table 1 for a representative
sample), they can be classified into three categories: a management philosophy,
implementation of a management philosophy, and a set of management processes.
The alternative definitions and the categories they represent suggest that the term
“supply chain management” presents a source of confusion for those involved in
researching the phenomena, as well as those attempting to establish a supply chain
approach to management. Research and practice would be improved if a single
definition were adopted.
Stevens (1989)
“The objective of managing the supply chain is to synchronize the requirements of the
customer with the flow of materials from suppliers in order to affect balance between
what are often seen as conflicting goals of high customer service, low inventory
management, and low unit cost.”
Houlihan (1988)
Differences between supply chain management and classical materials and
manufacturing control:
1) The supply chain is viewed as a single process. Responsibility for the various
segments in the chain is not fragmented and relegated to functional areas such as
manufacturing, purchasing, distribution, and sales.
2) Supply chain management calls for, and in the end depends on, strategic decision
making. “Supply” is a shared objective of practically every function in the chain and
is of particular strategic significance because of its impact on overall costs and market
share.
3) Supply chain management calls for a different perspective on inventories which are
used as a balancing mechanism of last, not first, resort.
4) A new approach to systems is required—integration rather than interfacing.”
1. A systems approach to viewing the supply chain as a whole, and to managing the
total flow of goods inventory from the supplier to the ultimate customer;
2. A strategic orientation toward cooperative efforts to synchronize and converge
intra-firm and inter-firm operational and strategic capabilities into a unified whole;
and
3. A customer focus to create unique and individualized sources of customer value,
leading to customer satisfaction.
SCM ACTIVITIES
1. Integrated Behavior
2. Mutually Sharing Information
3. Mutually Sharing Risks and Rewards
4. Cooperation
5. The Same Goal and the Same Focus on Serving Customers
6. Integration of Processes
7. Partners to Build and Maintain Long-Term Relationships
Bowersox and Closs (1996) argued that to be fully effective in today’s competitive
environment, firms must expand their integrated behavior to incorporate customers
and suppliers. This extension of integrated behaviors, through external integration, is
referred to by Bowersox and Closs as supply chain management. In this context, the
philosophy of SCM turns into the implementation of supply chain management: a set
of activities that carries out the philosophy. This set of activities is a coordinated
effort called supply chain management between the supply chain partners, such as
suppliers, carriers, and manufacturers, to dynamically respond to the needs of the end
customer (Greene 1991).
Effective SCM also requires mutually sharing risks and rewards that yield a
competitive advantage (Cooper and Ellram 1993). Risk and reward sharing should
happen over the long term (Cooper et al. 1997). Risk and reward sharing is important
for long-term focus and cooperation among the supply chain members (Cooper et al.
1997; Cooper, Lambert, and Pagh 1997; Ellram and Cooper 1990; Novack, Langley,
and Rinehart 1995; Tyndall et al. 1998).
Cooperation among the supply chain members is required for effective SCM (Ellram
and Cooper 1990; Tyndall et al. 1998). Cooperation refers to similar or
complementary, coordinated activities performed by firms in a business relationship
to produce superior mutual outcomes or singular outcomes that are mutually expected
over time (Anderson and Narus 1990). Cooperation is not limited to the needs of the
current transaction and happens at several management levels (e.g., both top and
operational managers), involving cross-functional coordination across the supply
chain members (Cooper et al. 1997).
Joint action in close relationships refers to carrying out the focal activities in a
cooperative or coordinated way (Heide and John 1990). Cooperation starts with joint
planning and ends with joint control activities to evaluate performance of the supply
chain members, as well as the supply chain as a whole (Cooper et al. 1997; Cooper,
Lambert, and Pagh 1997; Ellram and Cooper 1990; Novack, Langley, and Rinehart
1995; Spekman 1988; Tyndall et al. 1998). Joint planning and evaluation involve
ongoing processes over multiple years (Cooper et al. 1997). In addition to planning
and control, cooperation is needed to reduce supply chain inventories and pursue
supply chain-wide cost efficiencies (Cooper et al. 1997; Dowst 1988). Furthermore,
supply chain members should work together on new product development and
product portfolio decisions (Drozdowski 1986). Finally, design of quality
La Londe and Masters proposed that a supply chain succeeds if all the members of the
supply chain have the same goal and the same focus on serving customers.
Establishing the same goal and the same focus among supply chain members is a form
of policy integration. Lassar and Zinn (1995) suggested that successful relationships
aim to integrate supply chain policy to avoid redundancy and overlap, while seeking a
level of cooperation that allows participants to be more effective at lower cost levels.
Policy integration is possible if there are compatible cultures and management
techniques among the supply chain members.
Stevens (1989) identified four stages of supply chain integration and discussed the
planning and operating implications of each stage:
Stage-1 Represents the base line case. The supply chain is a function of fragmented
operations within the individual company and is characterized by staged inventories,
independent and incompatible control systems and procedures, and functional
segregation.
Gentry and Vellenga (1996) argue that it is not usual that all of the primary activities
in a chain— inbound and outbound logistics, operations, marketing, sales, and service
—will be performed by any one firm to maximize customer value. Thus, forming
As opposed to a focus on the activities that constitute supply chain management, other
authors have focused on management processes. Davenport (1993) defines processes
as a structured and measured set of activities designed to produce specific output for a
particular customer or market. La Londe proposes that SCM is the process of
managing relationships, information, and materials flow across enterprise borders to
deliver enhanced customer service and economic value through synchronized
management of the flow of physical goods and associated information from sourcing
to consumption.
Ross defines supply chain process as the actual physical business functions,
institutions, and operations that characterize the way a particular supply chain moves
goods and services to market through the supply pipeline. In other words, a process is
a specific ordering of work activities across time and place, with a beginning, an end,
clearly identified inputs and outputs, and a structure for action (Cooper et al. 1997;
Cooper, Lambert, and Pagh 1997; Ellram and Cooper 1990; Novack, Langley, and
Rinehart 1995; Tyndall et al. 1998).
Lambert, Stock, and Ellram (1998) propose that, to successfully implement SCM, all
firms within a supply chain must overcome their own functional silos and adopt a
process approach. Thus, all the functions within a supply chain are reorganized as key
processes. The critical differences between the traditional functions and the process
approach are that the focus of every process is on meeting the customer’s
requirements and that the firm is organized around these processes (Cooper et al.
1997; Cooper, Lambert, and Pagh 1997; Ellram and Cooper 1990; Novack, Langley,
and Rinehart 1995; Tyndall et al. 1998). Lambert, Stock, and Ellram suggest the key
processes typically include customer relationship management, customer service
management, demand management, order fulfillment, manufacturing flow
management, procurement, and product development and commercialization.
including Taylor (1997), Flaherty (1996), and Dornier, Ernst, Fender, & Kouvelis
(1998). Introductory articles include Cooper, Lambert, & Pagh (1997b), Davis (1993),
Johnson (1998a), and Lee & Billington (1992). To help order our discussion, we have
divided supply chain management into twelve areas.4 We identified these twelve
areas from our own experience teaching and researching supply chain management,
from analysis of syllabi and research papers on supply chain, and from our
discussions with managers. Each area represents a supply chain issue facing the firm.
For any particular problem or issue, managers may apply analysis or decision support
tools. For each of the twelve areas, we provide a brief description of the basic content
and refer the reader to a few research papers that apply. We also mention likely
Operations Research based tools that may aid analysis and decision support. We do
not provide an exhaustive review of the research literature, but rather provide a few
references to help the reader get started in an area. For a more detailed review of
recent research and teaching in supply chain management see Ganeshan, Jack,
& Magazine (1999) and Johnson & Pyke (2000a) respectively.
• Location
• Transportation and logistics
• Inventory and forecasting
• Marketing and channel restructuring
• Sourcing and supplier management
• Information and electronic mediated environments
• Product design and new product introduction
• Service and after sales support
• Reverse logistics and green issues
• Outsourcing and strategic alliances
• Metrics and incentives
• Global issues
Binary integer programming models play a role here, as do simple spreadsheet models
and qualitative analyses. There are many advanced texts specially dedicated to the
modeling aspects of location (Drezner (1996)) and most books on logistics also cover
the subject. Simchi-Levi etal. (1998) present a substantial treatment of GIS while
Dornier et al. (1998) dedicate a chapter to issues of taxes, duties, exchange rates, and
other global location issues (Brush, Maritan, & Karnani (1999)). Ballou & Masters
(1999) examine several software products that provide optimization tools for solving
industrial location problems.
The transportation and logistics category encompasses all issues related to the flow
of goods through the supply chain, including transportation, warehousing, and
material handling. This category includes many of the current trends in transportation
management including vehicle routing (Bodin (1990), Gendreau, Laport, & Seguin
(1996), and Anily & Bramel (1999)), dynamic fleet management with global
positioning systems, and merge-in-transit. Also included are topics in warehousing
and distribution such as cross docking (Kopczak, Lee, & Whang (1995)) and
materials handling technologies for sorting, storing, and retrieving products
(Johnson & Brandeau (1999) and Johnson (1998b)).
Because of globalization and the spread of outsourced logistics, this category has
received much attention in recent years. However, we will define a separate category
to examine issues specifically related to outsourcing and logistics alliances. Both
deterministic (such as linear programming and the travelling salesman problem) and
stochastic optimization models (stochastic routing and transportation models with
queuing) often are used here, as are spreadsheet models and qualitative analysis.
Recent management literature has examined the changes within the logistics functions
of many firms as the result of functional integration (Greis & Kasarda (1997)) and the
role of logistics in gaining competitive advantage (Fuller, O'Conor, &
Rawlinson (1993)).
However, in nearly every case, multi echelon inventory models assume a single
decision-maker. Supply chains, unfortunately, confront the problem of multiple firms,
each with its own decision maker and objectives. Of course there are many full texts
on the subject such as Silver et al. (1998) and Graves, Rinnooy Kan, & Zipkin
(1993)). Useful managerial articles focusing on inventory and forecasting include
Davis (1993) and Fisher, Hammond, Obermeyer, & Raman (1994). Clark & Scarf
(1960) perform one of the earliest studies in serial systems with probabilistic demand.
They introduce the concept of an imputed penalty cost, wherein a shortage at a higher
echelon generates an additional cost. This cost enables us to decompose the multi
echelon system into a series of stages so that, assuming centralized control and the
availability of global information, the ordering policies can be optimized. Lee &
Whang (1999a) and Chen (1996) both propose performance measurement schemes for
individual managers that allow for decentralized control (so that each manager makes
decisions independently), and in certain instances, local information only. The result
is a solution that achieves the same optimal solution as if we assumed centralized
control and global information.
inventory category addresses the quantitative side of these relationships, this category
covers relationship management, negotiations, and even the legal dimension. Most
importantly, it examines the role of channel management (Anderson, Day, & Rangan
(1997)) and supply chain structure in light of the well-studied phenomena of the
bullwhip effect that was noted in the introduction.
The bullwhip effect has received enormous attention in the research literature. Many
authors have noted that central warehouses are designed to buffer the factory from
variability in retail orders. The inventory held in these warehouses should allow
factories to smooth production while meeting variable customer demand. However,
empirical data suggests that exactly the opposite happens. (See for example Blinder
(1981), and Baganha & Cohen (1998).) Orders seen at the higher levels of the
supply chain exhibit more variability than those at levels closer to the customer. In
other words, the bullwhip effect is real. Typically causes include those noted in the
introduction, as well as the fact that retailers and distributors often over-react to
shortages by ordering more than they need. Lee, Padmanabhan, & Whang (1997)
show how four rational factors help to create the bullwhip effect: demand signal
processing (if demand increases, firms order more in anticipation of further increases,
thereby communicating an artificially high level of demand); the rationing game
(there is, or might be, a shortage so a firm orders more than the actual forecast in the
hope of receiving a larger share of the items in short supply); order batching (fixed
costs at one location lead to batching of orders); and manufacturer price variations
(which encourage bulk orders). The latter two factors generate large orders that are
followed by small orders, which imply increased variability at upstream locations.
transaction is taking place; an advance shipping notice informs the buyer of materials
in transit. Thus the manufacturer is responsible for both its own inventory and the
inventory stored at is customers’ distribution centres (Figure 2).
supply chains (Cohen & Agrawal (1996), Dyer (1996), Magretta (1998), and Pyke
(1998)).
Much of the research in this area makes use of game theory to understand supplier
relationships, contracts, and performance metrics. See, for instance, Cachon &
Lariviere (1996); Cachon (1997); and Tsay, Hahmias, & Agrawal (1999).
There is further evidence to support the idea that key industry sectors have achieved
significant performance improvements in the areas of inventory and time to customer
For example, in Fast Moving Consumer Goods (FMCG), retailers and consumers
enjoy wide choice, relatively low prices and good customer service. Retailers have
seen inventory levels cut from 10 weeks to 2-3 weeks. Order to delivery lead times for
ambient products have typically been reduced from 7 days to 48 hours and for chilled
products, delivery lead times can be as short as 4 hours. This is due to an overall
reduction in supply costs over the last 15 years, made possible by a clear SCM strategy
that supports the business objectives, efficient managed supply chains, improved IT
systems and electronic communications.
Externally integrated, Internet-enabled supply chains are highly complex. They will
only deliver benefits if the supply chain strategy is aligned with overall business
strategy. This can’t happen overnight but should progress in manageable steps to allow
Supply Chain Management in Indian FMCG Industry
Supply Chain Management
the organization to buy into and become familiar with the changes that will occur.
We view the design and delivery of successful supply chain management initiatives in
5 stages. The different stages of this approach are shown in the table below, and
summarized in the following paragraphs.
Stage 1 - Strategy
Starting out, you must consider how SCM will support and contribute to achievement
of business strategy and goals. That means assessing your current supply chain
operation and carrying out relevant audits and analyses internally and externally
amongst partners and customers, enabling you to assemble the business case for
investment in supply chain management initiatives and start to assess technical
solutions.
Stage 2 – Scope
The next step is to map out the business objectives into a series of plans that lay the
foundations on which advanced SCM can be developed and implemented. This will
include outlining the delivery
Vehicles - systems, processes and people, the standards that need to be adopted,
defining the parameters of change and selecting the project team. Key to any
successful change project is the identification of key sponsors who can help drive and
draw commitment to change through the organization.
With the complete SCM solution mapped out, you need to understand the
measurements and Key Performance Indicators on which the project will be measured,
and on which performance improvement will be assessed. At the same time you will
need to have a clear idea of the impact that the project will have on the rest of the
business - particularly for the people within your organization, customers and partner
organizations - so contingencies can be planned as necessary.
Stage 3 - Integration
At this stage all planning has been completed and the organization and partners now
need to be prepared for the changes about to take place. The measurement system will
need to be checked and reconfirmed. Building a test scenario is fundamental to any
major project and helps to iron out the creases before ‘go live’ takes place. Consider
setting up a formal operating plan to manage alliances and trading relationships in
order to ensure long term success.
Stage 4 - Delivery
‘Go Live’ is more than just switching on a system. It is the time for final tuning,
familiarizing users with the system and getting their understanding and commitment to
using it. It is also time to communicate the changes to customers and shareholders in
terms of the benefits and improvement they will experience from your organization.
Stage 5 - Evolution
Finally, the project is implemented but it certainly doesn’t end there. Once your SCM
initiative is up and running there needs to be an ongoing process of measurement,
monitoring, feedback and improvement to ensure that SCM delivers against the
original objectives and continues to evolve in line with business changes and delivers
customer satisfaction.
This should begin with the identification of the critical areas of your business that must
be controlled in order to realize the business objectives of SCM. Responsibility for
these areas is then allocated to teams and individuals and benchmarked performance
targets set.
Managers increasingly find themselves assigned the role of the rope in a very real tug
of war—pulled one way by customers' mounting demands and the opposite way by
the company's need for growth and profitability. Many have discovered that they can
keep the rope from snapping and, in fact, achieve profitable growth by treating supply
chain management as a strategic variable.
1. They think about the supply chain as a whole—all the links involved in
managing the flow of products, services, and information from their suppliers'
suppliers to their customers' customers (that is, channel customers, such as
distributors and retailers).
Rejecting the traditional view of a company and its component parts as distinct
functional entities, these managers realize that the real measure of success is how well
activities coordinate across the supply chain to create value for customers, while
increasing the profitability of every link in the chain.
Our analysis of initiatives to improve supply chain management by more than 100
manufacturers, distributors, and retailers shows many making great progress, while
others fail dismally. The successful initiatives that have contributed to profitable
growth share several themes. They are typically broad efforts, combining both
strategic and tactical change. They also reflect a holistic approach, viewing the supply
chain from end to end and orchestrating efforts so that the whole improvement
achieved—in revenue, costs, and asset utilization—is greater than the sum of its parts.
To help managers decide how to proceed, we revisited the supply chain initiatives
undertaken by the most successful manufacturers and distilled from their experience
seven fundamental principles of supply chain management.
Research also can establish the services valued by all customers versus those
valued only by certain segments. Then the company should apply a
disciplined, cross-functional process to develop a menu of supply chain
programs and create segment-specific service packages that combine basic
services for everyone with the services from the menu that will have the
greatest appeal to particular segments. This does not mean tailoring for the
sake of tailoring. The goal is to find the degree of segmentation and variation
needed to maximize profitability.
All the segments in Exhibit 1, for example, value consistent delivery. But
those in the lower left quadrant have little interest in the advanced supply
chain management programs, such as customized packaging and advance
shipment notification, that appeal greatly to those in the upper right quadrant.
Of course, customer needs and preferences do not tell the whole story. The
service packages must turn a profit, and many companies lack adequate
financial understanding of their customers' and their own costs to gauge likely
profitability. “We don't know which customers are most profitable to serve,
which will generate the highest long-term profitability, or which we are most
likely to retain,” confessed a leading industrial manufacturer. This knowledge
is essential to correctly matching accounts with service packages—which
translates into revenues enhanced through some combination of increases in
volume and/or price.
Only by understanding their costs at the activity level and using that
understanding to strengthen fiscal control can companies profitably deliver
value to customers. One “successful” food manufacturer aggressively
marketed vendor-managed inventory to all customer segments and boosted
sales. But subsequent activity-based cost analysis found that one segment
actually lost nine cents a case on an operating margin basis.
Excellent supply chain management, in fact, calls for S&OP that transcends
company boundaries to involve every link of the supply chain (from the
supplier's supplier to the customer's customer) in developing forecasts
collaboratively and then maintaining the required capacity across the
Exhibit 2 illustrates the difference that cross supply chain planning has made
for one manufacturer of laboratory products. As shown on the left of this
exhibit, uneven distributor demand unsynchronized with actual end-user
demand made real inventory needs impossible to predict and forced high
inventory levels that still failed to prevent out-of-stocks. Distributors began
sharing information on actual (and fairly stable) end-user demand with the
manufacturer, and the manufacturer began managing inventory for the
distributors. This coordination of manufacturing scheduling and inventory
deployment decisions paid off handsomely, improving fill rates, asset turns,
and cost metrics for all concerned.
While even such traditionalists can make progress in cutting costs through set-
up reduction, cellular manufacturing, and just-in-time techniques, great
potential remains in less traditional strategies such as mass customization. For
example, manufacturers striving to meet individual customer needs efficiently
through strategies such as mass customization are discovering the value of
postponement. They are delaying product differentiation to the last possible
moment and thus overcoming the problem described by one manager of a
health and beauty care products warehouse: “With the proliferation of
packaging requirements from major retailers, our number of SKUs (stock
keeping units) has exploded. We have situations daily where we backorder one
retailer, like Wal-Mart, on an item that is identical to an in-stock item, except
for its packaging. Sometimes we even tear boxes apart and repackage by
hand!”
Realizing that time really is money, many manufacturers are questioning the
conventional wisdom that lead times in the supply chain are fixed. They are
strengthening their ability to react to market signals by compressing lead times
along the supply chain, speeding the conversion from raw materials to finished
products tailored to customer requirements. This approach enhances their
flexibility to make product configuration decisions much closer to the moment
demand occurs.
Some companies are not yet ready for such progressive thinking because they
lack the fundamental prerequisite. That is, a sound knowledge of all their
commodity costs, not only for direct materials but also for maintenance,
repair, and operating supplies, plus the dollars spent on utilities, travel, temps,
and virtually everything else. This fact-based knowledge is the essential
foundation for determining the best way of acquiring every kind of material
and service the company buys.
o For the short term, the system must be able to handle day-to-day
transactions and electronic commerce across the supply chain and thus
help align supply and demand by sharing information on orders and
daily scheduling.
o From a mid-term perspective, the system must facilitate planning and
decision making, supporting the demand and shipment planning and
master production scheduling needed to allocate resources efficiently.
o To add long-term value, the system must enable strategic analysis by
providing tools, such as an integrated network model, that synthesize
data for use in high-level “what-if” scenario planning to help managers
evaluate plants, distribution centers, suppliers, and third-party service
alternatives.
Despite making huge investments in technology, few companies are acquiring this full
complement of capabilities. Today's enterprise wide systems remain enterprise-bound,
unable to share across the supply chain the information that channel partners must
have to achieve mutual success.
Ironically, the information that most companies require most urgently to enhance
supply chain management resides outside of their own systems, and few companies
are adequately connected to obtain the necessary information. Electronic connectivity
creates opportunities to change the supply chain fundamentally—from slashing
transaction costs through electronic handling of orders, invoices, and payments to
shrinking inventories through vendor-managed inventory programs.
To answer the question, “How are we doing?” most companies look inward and apply
any number of functionally oriented measures. But excellent supply chain managers
take a broader view, adopting measures that apply to every link in the supply chain
and include both service and financial metrics.
First, they measure service in terms of the perfect order—the order that arrives when
promised, complete, priced and billed correctly, and undamaged. The perfect order
not only spans the supply chain, as a progressive performance measurement should,
but also view performance from the proper perspective, that of the customer.
Second, excellent supply chain managers determine their true profitability of service
by identifying the actual costs and revenues of the activities required to serve an
account, especially a key account. For many, this amounts to a revelation, since
traditional cost measures rely on corporate accounting systems that allocate overhead
evenly across accounts. Such measures do not differentiate, for example, an account
that requires a multi-functional account team, small daily shipments, or special
packaging. Traditional accounting tends to mask the real costs of the supply chain—
focusing on cost type rather than the cost of activities and ignoring the degree of
control anyone has (or lacks) over the cost drivers.
The complexity of the supply chain can make it difficult to envision the whole, from
end to end. But successful supply chain managers realize the need to invest time and
effort up front in developing this total perspective and using it to inform a blueprint
for change that maps linkages among initiatives and a well-thought-out
implementation sequence. This blueprint also must coordinate the change initiatives
with ongoing day-to-day operations and must cross company boundaries.
The blueprint requires rigorous assessment of the entire supply chain—from supplier
relationships to internal operations to the marketplace, including customers,
competitors, and the industry as a whole. Current practices must be ruthlessly
weighed against best practices to determine the size of the gap to close. Thorough
cost/benefit analysis lays the essential foundation for prioritizing and sequencing
initiatives, establishing capital and people requirements, and getting a complete
financial picture of the company's supply chain—before, during, and after
implementation.
A critical step in the process is setting explicit outcome targets for revenue growth,
asset utilization, and cost reduction. (See Exhibit 5.) While traditional goals for costs
and assets, especially goals for working capital, remain essential to success, revenue
growth targets may ultimately be even more important. Initiatives intended only to cut
costs and improve asset utilization have limited success structuring sustainable win-
win relationships among trading partners. Emphasizing revenue growth can
significantly increase the odds that a supply chain strategy will create, rather than
destroy, value.
financial results. This plan helps to forestall conflicts over priorities and keeps
management focused and committed to realizing the benefits.
Most corporate change programs do a much better job of designing new operating
processes and technology tools than of fostering appropriate attitudes and behaviors in
the people who are essential to making the change program work. People resist
change, especially in companies with a history of “change-of-the-month” programs.
People in any organization have trouble coping with the uncertainty of change,
especially the real possibility that their skills will not fit the new environment.
Implementing the seven principles of supply chain management will mean significant
change for most companies. The best prescription for ensuring success and
minimizing resistance is extensive, visible participation and communication by senior
executives. This means championing the cause and removing the managerial obstacles
that typically present the greatest barriers to success, while linking change with
overall business strategy.
The companies mentioned in this article are just a few of the many that have enhanced
both customer satisfaction and profitability by strengthening management of the
supply chain. While these companies have pursued various initiatives, all have
realized the need to integrate activities across the supply chain. Doing so has
improved asset utilization, reduced cost, and created price advantages that help attract
and retain customers—and thus enhance revenue.
Both operations and finance managers have to be bilingual and understand each
other’s language. They must speak a common business language. The first step in
developing this dual competency is a better understanding of how various concepts (in
operations) and financial accounts are interrelated.
Better links between supply chain and finance The value of supply chain initiatives
should be measured in terms of impact on cash flow and market value, and on key
internal financial performance metrics such as economic profit (EVA), return on
capital, return on equity, working capital, etc.
This objective can be reached by a three-step approach that provides a comprehensive
vision of the existing relationship between companies’ operational and financial
performance.
Understanding the answers to three key questions provides the basis for the approach.
1) How does operational performance impact the components of the financial
statement (income statement and balance sheet)?
2) What is the impact of the operations in term of profitability, asset utilisation and
financial leverage efficiency?
3) What is the impact of the operations on the ‘real’ profit that takes into account the
cost of capital?
The financial impact of the supply chain components can be identified on the income
statement and balance sheet. The income statement reflects the operating activities of
the company during the year. It provides financial analysts and investors with key
measures of profitability: revenue, expenses and net income.
This approach links the company strategy to the operational performance. If the
company wants to increase its sales, or reduce its cost, it will act on different
components of the supply chain. For example if the company’s strategic priority is to
increase its market share and therefore its revenue, it will focus on leverage
parameters such as perfect order fulfillment, order fulfillment cycle time, and so on.
In order to optimise the overall performance of the company, it is important to help
establish the link between effective supply chain management and improved financial
performance.
To address this problem, the director of logistics suggests the implementation of Just-
in-Time Distribution (JITD), with Barilla’s distributors.
Under the proposed JITD system, decision-making authority for determining
shipments from Barilla to a distributor would transfer from the distributor to Barilla.
Specifically, rather than simply filling orders specified by the distributor, Barilla
would monitor the flow of its product through the distributor’s warehouse, and then
decide what to ship to the distributor and when to ship it.
• Volume discount
• Promotional activity
• Product proliferation
• Poor communication
To address this problem, the director of logistics suggests the implementation of Just-
in-Time Distribution (JITD), with Barilla’s distributors.
Under the proposed JITD system, decision-making authority for determining
shipments from Barilla to a distributor would transfer from the distributor to Barilla.
Specifically, rather than simply filling orders specified by the distributor, Barilla
would monitor the flow of its product through the distributor’s warehouse, and then
decide what to ship to the distributor and when to ship it.
We run the risk of not being able to adjust our shipments sufficiently quickly to
changes in selling patterns or increased promotions.”
“We increase the risk of having our customers’ stock out of our product if we have
disruption in our supply process.”
“We wouldn’t be able to run trade promotions with JITD.”
“It is not clear that costs would even be reduced.”
Methods for Coping with the Bullwhip Effect Our ability to identify and quantify the
canes of the but bullwhip effect lead to a number of suggestions for reducing the
bullwhip effect or for eliminating its impact. These include reducing uncertainty.
reducing the satiability of the customer demand process, reducing lead times, and
engaging in strategic partnerships. These issues are discussed briefly below.
1. Reducing uncertainty: One of the most frequent suggestions for decreasing or elim-
inating the bullwhip effect is to reduce uncertainty throughout the supply chain by
centralizing demand information, that is,by providing each stage of the supply chain
with complete information on actual customer demand. The results presented in the
previous subsection demonstrate that centralizing demand information can reduce the
bullwhip effect. Note, however, that even if each stage uses the same demand data,
each may still employ different forecasting methods and different buying practices.
both of which may contribute to the bullwhip effect. In addition, the results presented
in the previous subsection indicate that even when each stage uses the same demand
data. the same forecasting method, and the same ordering policy, the bullwhipeffect
will continue to exist.
2. Reducing variability: The bull whip effect can be diminished by reducing the vari-
ability' inherent in the customer demand process. For example, if we can reduce the
variability of the customer demand seen by the retailer, then even if the bull whip
effect occurs. the variability of the demand seen by the wholesaler will also be
reduced. We can reduce the variability of customer demand through, for example. the
use of an -everyday low pricing- (EDIT) strategy. When a retailer uses EDI.P, it offers
a product at a single consistent price, rather than offering a regular price with periodic
price promotions. By eliminating price promotions, a retailer can eliminate many of
the dramatic shifts in demand that occur along these promotions. Therefore, everyday
low pricing strategies can lead to much more stable—that is, less variable—customer
demand patterns.
3.Lead-time reduction: The results presented in the previous subsections clearly indi-
cate that lead times serve to magnify the increase in variability due to demand
forecasting. We haw demonstrated the dramatic effect that increasing lead times can
have on the variability at each stage of the supply chain. Therefore. lead-time
reduction can significantly reduce the bull whip effect throughout a supply chain.
Observe that lead times typically include two components: order lead times (i.e.. the
time it takes to produce and ship the item and inform lead time i.e.. the time it takes to
process an order). This distinction is important since order lead times can he reduced
through the use of cross-docking while information lead time can be reduced through
the use of electronic data interchange(EDI).
4. Strategic partnership: The bull whip effect can be eliminated by engaging in any of
a number of strategic partnerships. These strategic partnerships change the way
information is shared and inventory is managed within a supply chain, possibly
Supply Chain Management in Indian FMCG Industry
eliminating the impact of the bull whip effect. For example, in vendor managed
inventory .the manufacturer manages the inventory of its product at the retailer outlet,
and therefore determines for itself how much inventory to keep on hand and how
much to ship to the retailer in every period. Therefore, in VMI the manufacturer does
not rely on the orders placed by a retailer, thus avoiding the bullwhip effect entirely.
Other types of partnerships are also applied to reduce the bull whip effect. The
previous analysis indicates, for example. that centralizing demand information can
dramatically reduce the variability seen by the upstream stages in a supply chain.
Therefore, it is clear that these upstream stages would benefit from a strategic part-
nership that provides an incentive for the retailer to make customer demand data
available to the rest of the supply chain.
Supply Chain Management in Indian FMCG Industry
In recent years, the basis for global competition has changed. No longer are
organizations competing against other organizations, but rather supply chains are
competing against supply chains. The success of an organization is now invariably
measured neither by the sophistication of its products nor by the size of the market
share. It is usually seen in the light of the ability, sometimes forcefully and
deliberately harnesses its supply chain and to opt for innovative approaches of supply
chain flows such as single-piece-flow, to deliver responsively to the customers as and
when they demand it.
This paper tries to identify and analyze the importance and adoption of various
SCM practices in Indian FMCG industry. The paper is based on empirical study
conducted by the author in Indian FMCG industry and various SCM practices are
clubbed in different factors through Factor analysis.
It is rightly said that manufacturers now compete less on product and quality – which
are often comparable – and more on inventory turns and speed to market (John
Kasarda, 1999). This statement shows the beliefs that supply chain management will
increasingly be the principal determinant of the ability to compete. Every link in it can
add up to a competitive advantage. There was time when companies looked at their
supply chains – the upstream part of their value chain from the company’s perspective
as a means of focusing on their own core competencies, and of leveraging those of
vendors and lowering their cost to increase their responsiveness towards consumers .
Those goals can not be swept away by supply chain but they will be superseded by a
single super objective as to compete on the basis of how well organization manage its
supply chain – thus the competitive advantage is shifting from the shop floor. The
question arises why it is so important to optimize the supply chain. It is so because
inefficiencies in the supply chain leads to higher inventories at all points of the chain.
This adds costs related to wastages, blocked funds and risk of holding obsolete
products with chances of quality depletion.
Indian organizations are still juggling among the Material Resource Planning (MRP-
II), Enterprises Resource Planning (ERP), Logistics and Supply Chain Management
(SCM). However, it is quite evident that Indian corporate sector is fast recognizing the
need of SCM, which can integrate all other practices and processes. SCM in India
offers one of the fastest growth areas in revenues as well as employment. According
to ETIG, there is no reliable estimate of the market opportunities for supply chain and
its components exist in India today. Even though, ETIG estimates the Indian market
value for supply chain / logistics at 13 percent of GDP is more than US $50 billion, a
lion’s share of which is accounted for by transportation and warehousing.
Supply Chain Management in Indian FMCG Industry
India started a little late for restructuring and reformulating the strategies related with
supply chain. However, there is no doubt that Indian industries are fast catching and
gearing up for meeting the new business environment. A study of available literature
related with Indian business practices after 1991’s liberalization policies shows that
organizations are concerned about their value chain and identifying that competition is
shifting towards the efficiency and effectiveness of entire supply chain activities.
• Before opening of Indian market, Indian business giants were enjoying the solo
play with continuous expansion of capacities. Later on when they heard the
music of competition, they found themselves with excess capacities with huge
cost burdens. This forced organizations to control the cost factor for the
survival at marketplace.
• Later on, the emergence of Enterprises Resource Planning (ERP) gave boost to
BPR. For the first time, organizations could have an integrated view of the
various ‘silos’ that existed in their businesses, giving an opportunity to
rationalize, remove duplication and speed up the processes.
Changes can be implemented easily when tough times reign. Companies in India
have been looking at ways of cutting costs and improving process efficiencies, in
their quest to become globally competitive through taking initiatives for supply
chain management practices because SCM recognizes that distinct functions like
purchases, inventory management, distribution and production planning work
best when integrated. At the same time, supply chain management in India seems
to be following the path of more advanced industrial countries, involving not
only the customers, manufacturers, and vendors but also the third party service
providers, consultants, software providers etc.
Indian Fast Moving Consumer Goods (FMCG) industry has a long history. However,
the Indian FMCG industry began to take shape only the last fifty years. Even today,
the Indian FMCG industry continues to suffer from a definitional dilemma as well as
the exact estimation of market size. Nevertheless, more than Rs. 43,000 crores ( in
organized sector) fast moving consumer goods (FMCG) industry is a critical
component of the Indian economy. The actual size of industry is phenomenal, if one
adds the turnover of unorganized sector. That is why, this sector has potential to drive
growth, enhance quality of life and create jobs. The Indian FMCG sector is primarily
a low margin business, where success depends on the volume. Presently, the FMCG
sector is one of the largest in the country, which accounts for more than 14.5 per cent
of GDP with whooping sum of domestic consumption capacity of nearly 20 billion
U.S. Dollar. With the average growth of Indian economy in the range of 6-8% per
year will witness a consistence rise in demand and purchasing power of Indian
market. Following the trend, the FMCG sector will grow by 5-6% per year in mature
categories and 8-10% per year in upcoming categories. However, factors such as low
rural penetration, dependence on monsoon, the price sensitivity of the consumers and
increased level of competition could result in decreasing profit margins in the
industry.
The concept of supply chain management first appeared in the literature in the mid-
1980 by Keith and Webber. However, the fundamental assumptions on which SCM
rests are significantly older. The management of inter-organizational operations can
be traced back to channel research in the 1960’s by Bucklin and systems integration
research in the 1960’s by Forrestter. According to Cooper et.al. (1997), the term
supply chain management has risen to prominence over the past ten years. La Londe
(1997) identified positions at forty-three different companies that carry ‘supply chain’
in their titles. By now, SCM has become such a hot topic that it is difficult to pick up
any periodicals on manufacturing, marketing, distribution, customer management, or
transportation without seeing an article about SCM or its related topics.
Despite the popularity of the term supply chain management, managers and
researchers have considerable confusion over the actual meaning of the term.
Some authors such as Tyndall et.al. (1998) defined SCM in operational terms
involving the flow of materials and products. Ellram and Cooper (1990) viewed
SCM as management philosophy and still others as La Londe (1997) viewed it in
terms of management process. In fact, some have questioned the existence and
benefits of the SCM phenomenon, for example, Bechtel and Jayaram (1997)
asked ‘Is the concept of SCM important in today’s business environment or is it
simply a fad destined to die with other short-lived buzzwords?’
Research in SCM evolved along three separate paths that eventually merged into a
common body of literature, with a primary focus on integration, customer satisfaction
Supply Chain Management in Indian FMCG Industry
and business results i.e. creation or enhancement of value of the products or services.
Jones and Riley (1985) stated that supply chain management deals with the total flow
of materials from suppliers through end users.
Three differences between supply chain management and classical materials and
manufacturing control are identified by Houlihan (1988) as:
• The supply chain is viewed as a single process. Responsibilities for the various
segments in the chain are not fragmented and relegated to functional areas such as
manufacturing, purchasing, distribution and sales.
• Supply chain management calls for and in the end depends on strategic decision
making.
• Supply chain management calls for different perspective on inventories which are
used as balancing mechanism of last, not first, resort. A new approach to systems is
required – integration rather than interfacing.
• A systems approach to viewing the channel as a whole and to managing the total
flow of goods inventory from the supplier to the ultimate customer.
• A strategic orientation toward cooperative efforts to synchronize and converge intra-
firm and inter-firm operational and strategic capabilities into a unified whole and
• A customer focused orientation to create unique and individualized sources of
customer value, leading to customer satisfaction.
For adopting the supply chain management philosophy, organization has to establish
management practices that permit them to act or behave consistently. Bowersox and
Closs (1996) argued that to be fully effective in today’s competitive environment,
firms must expand their integrated behaviour to incorporate customers and suppliers.
The philosophy of SCM turns into implementation of supply chain management as a
set of activities. According to Greene (1991), the set of activities as a coordinated
effort is called supply chain management between the supply chain partners, such as
suppliers, carriers and manufacturers to respond dynamically to the needs of the end
customer. So supply chain management activities such as mutually sharing
information, risks and rewards with chain members (Ellram and Cooper, 1990),
integrated behaviour and processes and an effort to build and maintain long term
relationship are vital for realization of the management philosophy behind SCM.
Gentry and Vellenga (1996) argued that it is not usual that all the primary activities in
Supply Chain Management in Indian FMCG Industry
a value chain – inbound and outbound logistics, operations, marketing, sales and
service – are performed by any one of firm to maximize customer value. Thus,
forming strategic alliances with channel partners such as suppliers, customers, or
intermediaries e.g. logistics service providers, provides competitive advantage
through creating customer value (Langley and Holcomb, 1992).
Grocer 34.6
Chemist 5.9
Paan Bidi 16
Others 19
Outbound Transportation
Depots
Depots
Stockiest / Distributors
Retailer
Customer
The traditional basic structure of FMCG supply chain has not changed over the years.
The basic supply chain related with distribution side of FMCG industry is shown in
Figure 1. The competitive scenario has changed the importance of each element of the
Supply Chain Management in Indian FMCG Industry
chain operation i.e. a detailed planning and analysis of every activity of the chain so
that to make the same efficient and effective.
The study is focused on the supply chain management practices in fast moving
consumer goods (FMCG) sector, so the population for this study is entire
organizations operating in India under FMCG sector. A simple random sample has
been opted for this study. Out of an initial population of over 120 FMCG companies,
88 companies were selected through simple random sampling followed by
convenience and executive judgment at second stage. Consequent upon the response
rate fifty-two companies have been selected for study of SCM practices in Indian
FMCG industry.
The following criteria have been adopted in selecting the sample units as:
• The companies under sample should have either fully adopted or partially
adopted or planned to adopt the Enterprises Resource Planning (ERP) or such other
application package.
Supply Chain Management in Indian FMCG Industry
The methodology of data collection for present research is planned in such manner so
that every bit of information pertaining to different aspect of supply chain
management (SCM) in Indian FMCG industry has been collected. The following tools
have been used in data collection for the research work as:
Secondary Data: The secondary data has been tapped to know insight about the
Indian FMCG sector and various SCM practices world-over. Some of the sources
which helped me are such as: Associated Chambers of Commerce & Industry
(ASSOCHAM), New Delhi, Federation of Indian Chamber of Commerce and
Industry (FICCI), New Delhi, Confederation of Indian Industry (CII), New Delhi,
ETIG Knowledge Series, 2002, Supply Chain Council, www.supply-chain.com,
www.indiainfoline.com, www.scmr.org, Council of Logistics Management and
various other Libraries as Library of Faculty of Management Studies, Delhi
University, Central Reference Library, Delhi University, Ratan Tata Library, DSE,
Management Development Institute (MDI), IIT-Delhi etc.
Primary Data: The primary data has been collected through structured questionnaire
and individual depth interviews. A survey instrument in the form of a structured
questionnaire was designed based on constructs previously described. For getting the
responses to questionnaire basically, two types of scales were used as Agreement and
Adoption to assess the attitudes and opinions of respondents. Five-point Likert or
summated scale have been used with a maximum rating of 5 and minimum rating of
one with equal interval scale of 1.
The questionnaire was pre-tested by 20 supply chain managers for content validity.
Protocol analysis was also undertaken to help the respondents in answering the
questions, assess their problems in understanding some questions and suggest
modifications. A few pre-test questionnaires were also administered by mail wherein
comments were also invited from respondents. As a part of de-briefing, some of pre-
test respondents were also interviewed after they completed the questionnaire in order
to identify areas of confusions. Finally, pre-test questionnaire was also sent to two
SCM experts to suggest changes in questionnaire with regard to type of questions and
scales of measurement used therein. The pretest questionnaires were not used for
subsequent analyses.
Supply Chain Management in Indian FMCG Industry
The reliability of the scales used for survey in questionnaire was evaluated using
Cronbach’s alpha (Cronbach, 1951). For two scales used as Agreement continuum
and Adoption continuum, the value of cronbach alpha came greater than 0.75,
suggesting that scales are reliable.
For each of the two item scales i.e. agreement and adoption continuum, exploratory
factor analysis was used to identify a smaller set of factors to represent the
relationships among the variables prudently i.e. to explain the observed correlation
with fewer factors. In this research, principal component analysis with eigenvalues
greater than one was used to extract factors and varimax rotation was used to facilitate
interpretation of factor matrix. The Bartlett Test of Sphericity (value = 1919.451 and
significance value = 0.000) was used to validate the use of factor analysis. The value
of KMO came out less than 0.5 because sample size for research was comparatively
small. The reason behind small sample size was that the total size of population as
Indian FMCG firms under organized sector is in itself limited to nearly 120 firms.
Factor analysis with aforesaid method was applied on agreement continuum and items
with factor loading above 0.50 (with a few exceptions) were considered to determine
item representation to a single factor.
Supply Chain Management in Indian FMCG Industry
• Factor 1: Coordination with supply chain partners i.e. suppliers and customers.
This factor comprises the eight practices that address collaboration among supply
chain partners. This factor accounts for 16.4 percent of the variance in the data.
• Factor 6: Leanness of Supply Chain: It involves four practices, which indicate the
focal firm’s willingness to reduce waste and streamline the processes through proper
planning. These four practices account for 7.49 percent of the variance in the data.
These six factors accounted for a total of 59.88 percent of the total variance in
the data shown in table 2.
SCM technology has come a long way since the early 60’s when systems were mainly
based around financial measures. As technology progressed, purchasing and order
entry were added, evolving into simple Manufacturing Requirements Planning (MRP)
systems. However the organizational model was still firmly based around
departmentalization. MRPII (Materials Resource Planning) organizations had realized
internal efficiencies the only way to achieve more was to extend the organization, and
SCM was born.
The Internet is bringing SCM to the front line of business management. As well as
providing the essential ‘back-office’ fulfillment for successful eBusiness, organizations
are discovering the real benefits of eBusiness where Internet exchanges are
streamlining purchasing operations, accelerating procurement cycles and cutting
inventories, thus taking significant cost out of key processes.
But Internet enabled SCM is having a more dramatic effect on the business model,
particularly the way that company performance is being measured. A major challenge
is whether your supply chain is nimble enough to accommodate the new customer-
centric demands for total connectivity with customers and suppliers; increased velocity
as a performance measure; greater flexibility to meet rapid shifts in customer demand;
and customer-beating service levels.
When selecting the right SCM/AP S solution for your business, addressing the
following questions and issues will pay dividends:
Is the solution a specialist stand-alone product or an integrated part of a larger ERP
system?
Stand-alone may be better if you are running different ERP systems. However, if you
are using a single ERP system, the argument to select an APS add-on from the same
vendor becomes more compelling. You should also take into account the systems your
partners are running.
How well does the solution communicate with transactional ERP systems?
Does the technical architecture of the solution support scalability, i.e. can it grow as its
application in the organization grows?
How well does the solution address the specific needs of your industry? Are there
current reference sites available showing successful applications of this solution within
your industry?
The increasing complexity and cost of maintaining I T systems in-house and the move
to focus more on core business activities have sent many organizations down the
outsourcing route. Apart from the strategic imperatives of cost, efficiency and short-
term profit performance, outsourcing also provides benefits at an IT level. The
complexity of ERP and SCM technologies (which are often in direct proportion to the
strategic value of the system to the company), the speed at which technology is
Modern Technology used in Supply Chain Management
evolving, and the cost of specialist skills required to support these applications, means
outsourcing all or part of the management of an SCM system provides a cost effective
and flexible solution.
Fast moving consumer goods (FMCG) companies are looking at a 10-20 per cent
improvement in production and efficiency levels, thanks to adoption of new
technologies to track expansion of product portfolio, manufacturing locations,
aggregating godowns and shipment warehouses.
The new technology adoption by FMCG companies like Eveready, Marico, Emami
and Godrej Consumer Products, is expected to ensure faster access to shared
information, seamless integration, accuracy, cost-control and ease at the factory and
warehouse level. FMCG companies will spend around 10-15 per cent of net profit on
technology implementation and upgrade.
Over the last few years, most companies have forayed into a diverse portfolio of
businesses in FMCG alone, which has not only led to the rapid expansion of the
supply chain but has also enhanced its complexities.
Emami’s recent investment into IT, for instance, has ensured finalisation of its
balance sheet in a record 35 days, against the earlier norm of 60 days.
“We foresee a 10 per cent improvement in production and efficiency levels at Emami.
This will be achieved by implementing sales and operation planning, demand
management and distribution resource planning, which will enable system control to
forecast sales, check inventories at locations, plan manufacturing resources and
logistics to meet the customer schedules. It will also enable us to keep track of and
monitor finished goods inventories as our products are seasonal in nature,” according
to Manish Goenka, director, Emami Group.
Emami has implemented Wi-Fi at its corporate office. Also, for unified
communications, Cisco products like call manager and IP phones are under evaluation
and trial runs are on to connect the Emami corporate office with two factories in
Kolkata and Guwahati. This is expected to be implemented soon. A video conference
(VC) system has already been implemented at Emami corporate office.
“We have implemented SAP ECC 5.0 in all functions, including manufacturing and
supply chain that results in seamless integration of all business functions. This brings
about faster access to shared information, cost control and complete sales
information,” Goenka said.
“We had diversified into new businesses like CFL and home light. We needed
advanced supply chain management software that would take care of end-to-end
demand management and market forecast and accordingly plan module for delivery
and despatch chain,” said Arup Choudhury, senior general manager (IT), Eveready.
“We expect to reduce inventory time to 10 days from 15 days right now. We also
intend to consolidate our warehouses into six, from 34 right now. Each mother
warehouse covers an area of 15-25,000 sq ft,” Choudhury said.
Finance teams faced a number of problems when it came to collating data, managing
various budget versions and reporting, leaving Marico with a vast increase in manual
work, no time for critical analysis, and a strong need for an automated budgeting,
planning and reporting solution.
Godrej Consumer Products, on its part, has outsourced its information technology (IT)
requirements to Hewlett-Packard (HP). H K Press, vice-chairman of Godrej
Consumer Products, said: “We have retained the core team of close to 7 people, the
remaining (around 23 people) have been shifted to H-P payrolls. H-P will take care of
both our software and hardware requirements for all kinds of operations.”
In the short-term, Godrej Consumer would be looking at reworking its supply chain
and logistics costs once goods and services tax (GST) is implemented from April
2010, and CST is phased out from 4 per cent to nil. The company also intends to
consolidate the FMCG companies in the Godrej Group and so, post-GST
implementation, it would be looking at how the group FMCG companies can get
together to use common depots and supply chain. This would not only reduce cost of
operations but also enable reduction of inventory levels.
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The 20th century, the automatic identification industry can be said that the world of
bar code technology, since the 70 in the 20th century to promote the application of
the global bar code system of goods (that is, EAN-UPC system) Since the birth of bar
code technology in a rapidly developing situation occupation from the business-to-
industry, from warehousing to the flow of almost all data management applications,
can be said that the bar code technology on supply chain management, from the
commodity production, management and circulation is an important contribution to
the development of modern logistics, providing management, lower management
costs and the promotion of global economic integration process of laying a solid
foundation.
However, with the changing times and technology, constantly updated, bar-code
technology has been unable to meet existing Enterprise applications. Such as fast-
moving consumer goods supply chain management, as a result of the special nature of
the industry, short-cycle circulation of goods for goods in real-time transmission of
information requirements. The existing bar code technology within a short time from
a large number of commodities of goods to obtain information, the only way to be
man-made one-on-one on the way to complete the scan. Wal-Mart & RFID
program & The implementation of RFID is no doubt that in the fast-moving
consumer goods supply chain management in the development of a powerful fulcrum.
At present, many businesses have been aware of RFID in the FMCG industry, the
necessity of application of the domestic fast-moving consumer goods enterprises in
Guizhou Maotai Group has also launched a wine-based anti-counterfeiting RFID
technology research and application of RFID technology in supply chain management
applications. At the same time, as a fast-moving consumer goods supply chain
management is an integral part of the development of cold chain logistics needs of the
RFID technology more strongly.
To EPC Global standards for RFID smart label wireless Radio Frequency wave
through the issue, so that a new automatic identification technology breakthrough, in a
short period of 1 second, 200 commodities can read information, and through wireless
Internet data model to update. This technology into the entire supply chain of
enterprises, it will solve the existing bar code technology is not possible to identify a
number of product issues, the smallest unit for each of the flow of goods, the
establishment of a global symbol in order to achieve the entire supply goods chain in
real-time tracking and management. At the same time, greatly increased the fast-
moving consumer goods supply chain, the progress of the entire process.
(1) packaging using rf Tags: Smart Label sticker model, 915MHZ, ISO18000-6/EPC
standards, paste fixed position in the commodity.
(2) required RFID equipment: EPC Globe standards to support the two-standards-
compliant reader, and have the network interface; fixed reader; handheld terminals.
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4.2.3 RFID in the FMCG supply chain management applications in specific aspects
of To soft drinks as an example, manufacturers of RFID in the context of the
production line, the use of shipping links; in logistics and distribution sectors of
warehousing, distribution, transportation applications, as well as the shelves at the
retail chain management, order management, sales management, etc. applications.
Soft drinks cans in each package are the use of a RF tag. Tags size in each tab has a
sand equivalent of an electronic chip and antenna. In this tab of the micro-chip storage
of the electronic product code, or EPC. Cans of soft drink each have a unique EPC
code.
4.2.4 RFID applications in the manufacturing chain. Carried out in the beverage
filling lines, the lines at various locations on the RF tag reading equipment will be
automatically sent the data read command, and receive feedback from the label. The
data collected by the production control systems and records, and further into the
enterprise production management system, automatic counting and tracking database
product. At the end of lines, canned drinks have been put into the box, in the same
box with a RF tag, when a box of finished beverage packaging and production control
system of RF would be label printer driver (a special electronic chip to write data,
printers, usually at the same time the existing functions of barcode printers), will be
detailed information on the box (Transport bar, production date, etc.) to write to this
tab, at the same time, data storage management system into production in. These
boxes, stored in the warehouse when he was placed in the tray, each tray also has a
RFID label. Delivery platform in the top of the door there is a RFID reader device,
when the tray through the door, the read-wave radio equipment, the activation of these
labels. At this point, the label wake up over and began to send their EPC, a reader
only a label statement. It will be followed by rapid opening and closing of these
labels, until the entire label reading so far. Mature technology on the current view,
every second, RFID reader equipment can successfully read the RFID tags 200. First
of all, this information was passed to the software system, and then in the local area
network or the Internet service system to resolve the object (ONS), search with the
EPC-related commodities, like the Internet, like the registration, ONS role is the
software system data into the enterprise database, and retrieve objects Network. Data
for each product will be a physical markup language (PML) to store, similar to the
popular XML, can perform some tasks common enterprise. Tag reading equipment
and systems, will receive EPC data transfer, while the follow-up drive system. The
system via the Internet (objects networking) to the Object Name Service (ONS)
database to send information, the database is like a reverse telephone directory
service, that is, according to numbers provided by the address received; ONS server
EPC encoding and there are a large number of the product information that matches
the server address, the data all over the world not only for the use of software systems,
and software systems can be automatically added to the data; PML (Physical Markup
Language) server, storage of the data integrity of the plant products, in the example, it
identified the EPC code is received by a certain company canned drinks Cherry
Hydro. Software system as a result of inquiries to know the orders issued by the
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location of the reader, so that it now also know which manufacturers can drink it, if
there is the issue of product quality, with this information can be easily traced back to
the source of the problem in order to achieve the tracking of products.
4.2.5 RFID in distribution and retail part of the application. Now, the whole of the
soft drinks packaging is transported to a distribution centre, located in front of the
loading dock platform RFID reader to work, will be packing all of the beverages out
of the EPC code to read. Because RFID can be collected non-contact, or even read
through the box, so there is no need for the loading dock to get checked out of the box
with the real information and the number of packaged goods. Tag read device data
obtained by the introduction of software systems, objects in the whole network, then
drink a change in location information. After the distribution centre business
processes, goods were delivered to retail outlets, in the ship on the platform, RF tags
are read once, when entering the warehouse when the retail outlets, RF tags are read
again, read the course of these two to verify the accuracy of the process of logistics
and transport, while the location of the new information reflected in the complex
network. Beverages served on the warehouse, the retail outlets of goods inventory
information was changed, so that shopping mall computer system of the soft drinks
will be able to achieve real-time monitoring of inventory to ensure that goods.
Similarly, the shelves of shopping malls also integrates the RF tag reading equipment,
when a staff member to the shelf replenishment, the use of hand-held reader will drink
the corresponding information is recorded in the shelf inventory. At this point, a
customer bought 6 cans of beverages, to the shopping centre shelf replenishment will
be issued a news system, the system is based on real-time inventory information (and
warehouse shelves in the number of goods) to determine whether to order, if the stock
of goods on the shelf down to a certain extent, but also to the staff to send
replenishment information.
4.2.6 RFID has brought convenience to customers. RFID technology also the
convenience of our customers. Customers can in the supermarket to the RFID device
in the pre-understanding of a variety of information products, including
manufacturers, production dates, such as product quality. In addition, customers do
not need to wait a long time to pay bill, just pushing through the selected items,
together with the door tag reading equipment on the list. The door of the reader
through the goods EPC, to identify the shopping cart items and automatically
complete the checkout, customers simply swipe card or credit card payment can be
left. Drinks were brought home in their refrigerator when the refrigerator on the same
label reader will automatically record these commodities, which constitute a small
inventory management system; when removed from the refrigerator can drink it, it
will be that was finished, when the refrigerator inventory change. Such as inventory
management has continued to the next, the refrigerator will provide a copy of its out-
of-stock list. RFID is the home refrigerator.
Finally, the beverage cans to complete its mission, was sent to recycling centers, RF
tags in the Recycling Center are automatically sorted into the appropriate re-use
categories.
provided for low-temperature environment, in order to ensure the quality of goods and
reduce wear and tear of a logistics systems engineering, is frozen Technology-based
refrigeration technology as a means of low-temperature logistics process. Fast-moving
consumer goods in the dairy products, cold drinks, aquatic products, meat and other
fresh foods have to be cold-chain transport. Fast-moving consumer goods supply
chain as an important part, cold-chain logistics applications of RFID more intense.
The original cold-chain logistics management tool monitoring techniques is the
largest technology lags behind the bottleneck at this stage of our technology to the
main crux of the matter is: artificial measurement and paper records; unified data
systems support; real-time poor, out of line monitoring; evidence of the difficulties
can not be determined responsibility; no warning, such as the loss rate is high. In this
regard, the industry hopes will be the introduction of advanced RFID technology
needs proper temperature management of the logistics management and production
process management, temperature changes will be recorded in the "zone of the
RF temperature sensor label on the fresh products, the quality and meticulous , real-
time management.
Temperature sensor with RF tags and applications areas can do is: RF tag data storage
capacity, can be reused, the use of low cost, easy to operate, within 30 meters in
distance learning. At the same time, RF tags provide the ID code, and continuous
record of temperature data, there are accurate time records, easier to define liability
for retrospective information, you can quickly grasp the fresh degree of management
of the most important transit temperature conditions, and to promote the flow of the
process management of the fresh degree of improvement. If necessary, RFID can also
expand the grounds of the establishment of enterprises or Union-wide cold chain cold
chain monitoring centre processes data platform. In fact, RFID system works is very
simple. Will be collected as long as the temperature of temperature sensor into the
timing of the chip RFID tags, RF tags when the RFID reader antenna receiving the
signal, it will be the temperature inside the RFID chip data upload to the RFID reader
by the back-end system. The system can be managed in a real-time monitoring of
temperature change material, to achieve real-time monitoring, early warning
management. Can also read all the point-to-point one-time supply chain temperature
data, to generate static temperature charts, simply complete the supply chain of
temperature regulation.
With the RFID technology is getting more mature, if the supplier RF tags can further
reduce the price to domestic supermarkets to accept the price of RFID also the
relevant domestic policies introduced, then the full realization of the domestic
supermarket just around the corner of the application of RFID is still, after all, RFID
technology for all to see.
The climate change is happening faster and will bring bigger changes quicker than
anticipated. Ironically, market and the nature hitting the wall at once, is a sign that we
need to find better ways to be more sustainable options.
Whether the drive is to comply with the government regulations or to meet the
customers’ expectations companies are finding motivation to go green. Going green
does not just impact company’s thinking and strategy but influences supply chain as
well. Righteously, the focus is not just to attain cleaner water consumption and
alternative energy sources for server farms, but to make supply chains more
environmentally friendly.
Yet, despite the potential for significant gains, most supply chain managers are still
not focusing on environmental concerns. Typical to any supply chain are the
following processes and functions, which support the complete cycle of material
flows. Each of these functions has a profound impact on the environment.
The relationship between EMSs and GSCM practices has potentially complementary
and significant implications for an organization’s environmental sustainability
because together they offer a more comprehensive means of defining and establishing
sustainability among networks of business organizations7. However, when EMSs are
adopted in the absence of GSCM, environmental benefits are likely to diminish. This
is because the organization’s supply chain network does not share its environmental
goals and environmental sustainability of any organization is impossible without
incorporating GSCM practices.
Case Study 1:
A large Chicago-based electric utility company, with annual revenues of
approximately $7 billion, demonstrated that electric utilities and other companies can
successfully and substantially reduce their costs and environmental burdens with
innovative accounting practices.
Analyses of the total cost of managing materials and equipment revealed that the costs
related to environmental management were often overlooked. In the first phase of life
cycle management activities, company minimized the chemical inventories at
generating stations. After realizing its successes, company launched a formal Life
Cycle Management (LCM) initiative. Since then a small, dedicated LCM staff has
formed effective partnerships with the operating divisions to systematically assess life
cycle costs and benefits. This initiative has not only reduced waste volume but also
provided over $50 million in financial benefits. These gains include improvements in
supply chain management, facility management, and other business processes,
accruing to the supply chain activities.
Case Study 2:
As the largest manufacturer of wood windows and patio doors in North America, the
company achieved substantial financial and environmental benefits when it began
incorporating environmental considerations into its purchasing, materials handling,
inventory and disposition decisions.
Started as a directive to the staff to reduce emission levels of toxic chemicals; soon
became a Corporate Pollution Prevention Team whose mission was to eliminate the
use, release and transfer of hazardous chemicals.
The team conducted a waste accounting project, developed waste reduction goals, and
justified waste reduction projects by developing several business cases that quantified
environmental and other cost savings. For example, the team justified the purchase of
an improved system for mixing paints at point-of-use based on the savings from
improved material usage rates and reduced waste. Based on their initial success,
company managers recognized that a more systematic implementation of
environmental accounting techniques would improve their ability to make strong
business cases for a wide range of projects. Accordingly, they developed procedures
for environmental cost assessments for a number of supply chain management
activities. The process leads to more comprehensive and lucid business cases,
including detailed Internal Rate of Return (IRR) schedules that incorporate savings
from increased material efficiency and reduced waste streams.
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Conclusion
With companies waking up to an environmentally aware world, whether it’s about the
competitive advantage or for regulatory reasons, greening the supply chain has
become a necessity. Greening the supply chain is not a onetime exercise, nor can it be
done overnight. It’s a journey that not only requires the four major functions -
purchasing and in-bound logistics, production, distribution and out-bound logistics,
and reverses logistics- to be the drivers, but also requires organizations to adopt an
EMS system.
EMS and GSCM adoption may not just provide a vehicle for organizations to “signal”
to market participants that their environmental strategies adhere to or exceed generally
accepted environmental standards but also lead to greater acceptance of the
organization’s strategic approach and insulate organizations from competitors’
criticisms.
Supply chain strategies and management have, of course, always been a vital part of
any manufacturer’s or distributor’s profit picture. Despite this obvious fact, until
recently they were generally left to an ad hoc method of planning and execution.
Coordination and long-range planning were rarely part of the landscape for managers
in warehousing and shipping. There was certainly no full-fledged academic approach
to logistics management. That is hardly the case today. There now exist full-scale
programs at major universities for studying logistics and supply chain management.
Although these programs have existed for awhile, it is really only with the explosive
growth of the Internet that these formal study opportunities have attracted companies’
attention. One of the nation’s leading programs is the Centre for Transportation
Studies (CTS) Massachusetts Institute of Technology (MIT). CTS recently held its
annual Affiliates Day Event in Louisville, Kentucky, hosted by UPS. One of the
featured speakers was David Simchi- Levi, a professor of Engineering Systems at
MIT, who discussed the trends in e - commerce and supply chain management.
Professor Simchi-Levi is prominent in the field of logistics and supply chain
management. He has co-authored a prize-winning book, Designing and Managing the
Supply Chain, on the subject and teaches these topics at the undergraduate, graduate
and the executive levels. Simchi-Levi is also a technology entrepreneur and is founder
and chairman of LogicTools Inc. (www. logic-tools.com ), a software development
company focusing on tools for logistics and supply chain management. LogicTools’
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software, LogicNet, a decision support system that facilitates strategic planning for
distribution systems, was featured in the April 2000 issue of Parcel in the article
“Designing Perfect Distribution Channels.”
During the fall of 2000, once-mighty dot-coms were dropping faster than the leaves.
Most of the demises were a result of the disenchantment of investors — and they had
a good reason: the companies were simply not making money. Why not? Primarily
because the companies’ supply chains were not functioning well, resulting in ongoing
operating losses as well as many dissatisfied customers.
Let ’s start with the basics. What is your definition of “supply chain
management?”
Conflicting objectives?
But, on the other hand, if customer demand is much smaller than anticipated, the
manufacturer wants the ability to return inventory. Hence, the suppliers’ objectives
are in direct conflict with the manufacturers’ desires for flexibility.
Note that the manufacturers’ objective of implementing long production runs typically
implies large inventory, which conflicts with the warehouses’ objectives. In fact,
warehouse managers wish to keep their inventories low, but with quick replenishment
capabilities. These goals, of course, increase transportation costs but greatly reduce
inventory costs.
And finally, the customers want the best of all worlds: they want a short order lead
time — instant gratification. They want their suppliers to have large stocks on hand
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with a huge variety of products ready to ship immediately. And naturally, they want
low prices.
Each of these areas has a laudable goal. What’s needed, however, is integration; the
objective must be to reduce total cost and increase service levels. In that process, the
firm may have to increase inventory or transportation costs. However, by integrating
supply, manufacturing and logistics activities and by strategically optimizing the
performance of each, overall costs can be reduced.
This is exactly why many companies are engaged in strategic partnering and alliances
with both customers and suppliers. These strategies allow supply chain partners to
deal with conflicting objectives and efficiently integrate the supply chain.
The bullwhip effect is a term coined by Procter and Gamble to describe a problem
they observed in the supply chain for Pampers, its disposable diapers. Babies use a
pretty steady number of diapers daily. (Editor’s note: unless the father decides to feed
a six-month-old an eight-ounce bottle of prune juice, as in the case of the editor’s
daughter). But the orders placed by retailers to distributors showed a good deal of
variability. The orders from the distributors to the suppliers were even wider in their
swings.
The farther up the supply stream you go, the wider the swings in order quantities. In
the end, Procter and Gamble’s manufacturing plants were receiving orders that were
far out of proportion to customer demand.
The bullwhip effect stems from a number of sources. First, traditional inventory
management techniques practiced at each level of the supply chain lead to the
bullwhip effect. This is due to the need of each level in the supply chain to forecast
demand.
An important characteristic of all forecasts is that the more data we receive the more
we modify the forecast and therefore the inventory policy, leading to an increase in
variability. Second, volume discounts, transportation discounts and promotional
activities tend to destroy the structure of customer demand, forcing retailers to order
less frequently than customer demand, and therefore increase variability in the supply
chain. Finally, the longer the lead-time in the supply chain the larger the increase in
variability.
Yes. E-business can eliminate the bullwhip effect, thus reducing costs and increasing
profits but also increasing service levels and flexibility. Here, I am focusing on
providing each stage of the supply chain with complete information on customer
demand, so-called “supply chain visibility.” Supply chain visibility can reduce the
bullwhip effect: if customer demand information is shared among supply chain
partners, each stage of the supply chain can the use actual customer demand to create
more accurate forecasts, rather than relying on orders received from the previous
stage, which can vary more than customer demand.
No, e-business is far more than e-commerce. E-commerce is defined as the ability to
perform transactions electronically. Thus, e-commerce is a part of e-business. E-
business, on the other hand, is the process of redefining a business model using the
Internet to improve the extended enterprise performance. Thus, the focus in
e-business is on using the Web to improve intra-organizational, B2B and B2C
processes and transactions.
Definitely, In fact e-business suggests a shift from the traditional “push” supply chain
strategy to a new supply chain model called “push/pull” strategy. A push system is a
traditional supply chain where production and distribution are based on forecasts. The
problem with that is that “forecasts are always wrong.” You can be close but never
precisely on the mark. It is difficult to predict customer demand and therefore difficult
to match supply and demand. And the farther out the forecast, the less accurate it is.
Thus, a push system is very susceptible to the bullwhip effect.
In the early days of the Internet and the dot-com companies, many believed that the
Internet suggested a completely different supply chain strategy, a pull system. In a
pull strategy, customer, rather than forecast, demand drives production and
distribution. That is, in just a pure pull system, the firm does not hold any inventory
and only produces to order. These systems are intuitively very attractive since they
allow the firm to eliminate inventory , reduce the bullwhip effect, increase service
levels, etc.
Unfortunately, it is very difficult to implement a pull supply chain strategy if there are
long lead times in the supply chain. Similarly, a pull strategy does not take advantage
of economies of scale, since production and distribution are in response to specific
customer demand, and therefore batch production or fully loaded trucks are hard to
achieve. These advantages and disadvantages of push and pull supply chains have led
companies to look for a new supply chain strategy that takes advantage of the best of
both worlds; enter a hybrid of the two systems, that is, push /pull supply chain
systems.
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The book industry is a good example of the evolution of supply chain strategies from
push to pull and then to push /pull. Barnes and Noble, for example, has a typical push
supply chain. When Amazon.com started about four years ago, its supply chain was a
pure pull system — with no warehouses and no stock. Actually, Ingram Books filled
orders to meet customer demand. But this arrangement simply did not work well.
Today, Amazon.com has seven warehouses around the country where it stocks most
of the titles it sells. Thus, inventory at the warehouses is managed based on a push
strategy (based on forecast) while demand is satisfied based on individual request, a
pull strategy.
The online grocery industry is another excellent example. When Peapod was founded
11 years ago, the idea was to establish a pure pull strategy with no inventory and no
facilities. When a customer ordered groceries, Peapod would pick up the products at a
nearby supermarket. Unfortunately, stock-out rates at the supermarkets were very
high. In the last few years, Peapod changed its business model to a push / pull
strategy, adding a number of warehouses; stock out rates are now less than 2%. Of
course, in this industry there are other challenges, especially reducing transportation
costs. The problem is that no online grocer has the geographic density of customers
that will allow them to control transportation costs and therefore compete with
traditional supermarkets.
Yes. One important strategy used by retailers and suppliers is called collaborative
planning, forecasting and replenishment (CPFR). CPFR is a process in which supply
chain partners coordinate plans to better match supply and demand. This strategy was
first developed and implemented successfully by Wal-Mart in collaboration with
Warner-Lambert in early 1995.
The CPFR process, as implemented by these companies, requires buyers and sellers
to:
1. Establish a front-end agreement and a joint business plan (collaborative planning).
2. Create a sales forecast, identify and resolve exceptions (collaborative forecasting).
3. Create an order forecast (collaborative replenishment).
How do these new supply chain strategies affect the parcel industry?
The new developments in supply chain strategies mean good news for the parcel
industry. Both the pull and the push/pull system rely heavily on individual parcel
shipments rather than bulk shipments. This is especially true in the B2C area where a
new term has been coined: e-fulfillment.
Rural supply chains are the next big issue for researchers and businesses in India and
China. The reasons are simple: the urban areas are congested with deteriorating
quality of life and saturated markets. Nearly 60 per cent of India’s population live in
rural areas, and forecasts indicate that these numbers will remain the same, even in
2050. There would be 800 million people living in Indian rural areas in the 2040-’50s,
providing the scale and the markets for commodity supply chains to thrive. Thus,
there is a need for transforming rural India into a group of sophisticated vibrant
activity centres. Innovations in every layer – products, processes, business models,
and service models – are fundamental for this transformation process to happen.
Businesses need to be reinvented with high technology tools that can provide
employment and services for millions of rural dwellers at an affordable cost. In this
article, we provide an integrated framework, and also a glimpse of those technologies
and models that might work in rural scenarios.
7.2.1 Introduction
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What is ‘global,’ ‘urban,’ and ‘rural?’ The difference between urban centres and
rural areas may seem so obvious. The criteria used include population size and
density, and availability of services such as communication, education, healthcare and
finance. Different population thresholds are used for different countries: for African
nations, it is 5,000 inhabitants, while for Latin American and European nations, it is
2,000 or 2,500, or even less. A large proportion of settlements classified as ‘rural’ in
China and India would fall within the ‘urban’ category, if these population thresholds
are adopted. Investments in services and infrastructure tend to concentrate on urban
areas. MNCs choose cities with good logistics and IT, educational and financial
infrastructure, and power and water facilities for FDI. As a consequence, investments
for betterment of rural areas are generally done by governments. Thus, rural supply
chains dealing with agro-products, handicrafts, toys, textiles and apparels emanate
from villages and small towns with not so sophisticated infrastructure and lifestyles.
The rural areas host the tail-end of very important food and apparel supply chain
networks, whether they are rural, urban or global. Global supply chains cross
countries and can originate either in urban or rural areas, depending on the product.
For example, American and European retailers source fruits, vegetables, meat, leather
and apparel products from rural areas in low-cost countries. Also, supply chains
migrate from local to global, urban to rural, and vice-versa. The first wave of
supermarket revolution occurred extremely fast in urban areas, with high sales growth
rates. The second wave starts with diffusion into second tier areas and the third wave
starts when super markets move in to rural areas. Rural retailing is portrayed as the
next sunrise segment in retailing space. Strategies and development initiatives have
been implemented all across the world to alleviate rural areas from these inflictions by
formulating revenue generating programmes. For example, in the US, agricultural
prospects of different regions have been identified and a cluster mechanism has been
adopted. In South Africa, policy measures have been taken to alleviate the Negro
community by providing agricultural lands on grant basis. In Thailand and Japan, the
concept of “One Village One Product” has evolved, which improved the prosperity of
rural communities in these countries. The model of Grameen Banks in Bangladesh
gave birth to the concept of “Micro-credit.” In India, there were several public and
private sector initiatives in the areas of agriculture, aquaculture, and also for
supplying farm inputs to the farmers.
For example, the Bharat Nirman project, with an allocation of Rs. 1.76 trillion aims to
build roads, provide electricity to 100,000 villages, extend irrigation to 10 million
hectares, or 24.7 million acres, and build 6 million houses by 2009. Across the
country, companies like HLL, Godrej Aadhar, DCM Hariyali Kisaan Bazaar, Triveni
Khushhali, ITC Sagar Choupal and Tata Kisan Sansar are helping farmers earn a
better livelihood. The Indian rural areas host two kinds of supply chains: food
products and apparel; and furniture, leather items and toys. In agri-business sector, the
food processing industry is small and factories are located nearer to demand centres,
i.e., in big cities or their outskirts. Integrating the agribusiness and SME sectors into
the global value chain is high priority item for India for the following reasons:
• India has 12.4 million SMEs, contributes 7 per cent of GDP, 35 per cent of exports,
over 29.5 million employed.
• In India, 51 per cent is cultivable land. India is ranked in the top-fi ve list in many
agricultural produce like vegetables, fruits, milk, animal husbandry, etc. But the
revenue generated from these resources does not match its optimal potential. With
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growing importance for processed foods, the food processing industry in India still
remains at 1.6 per cent, while in countries like Thailand and Brazil, it is 65-75 per
cent. The wastage that goes into the agri-produce is almost 30 per cent.
• Retail in India is another vibrant story that is least saturated with global markets.
Currently there are 12 million retail outlets employing 21 million (7 per cent of total
work force) people, and these provide no entry barriers for big players. Organised
retail segment in India is small now, but has tremendous market size in urban and
rural areas.
Thus, the priority in India today is to develop its local rural and urban supply
chains and integrate them into the global value stream.
There is also a secure financial network that connects financing, insurance and
creditrating agencies, and all other stakeholders and financial institutions. Thus, we
see that the eco-system that enables an agile rural supply chain has players from
farming,
“We need to reinvent rural supply chain networks using high technologies, keeping in
mind the inefficiencies and constraints imposed by the infrastructure and economic
environment.”
manufacturing, retailing, financing and finally from the customers. This is an ideal
rural supply-demand-financial chain and the current state of the Indian rural chains
is far from it. Currently in India, there are attempts to connect stakeholder’s
information networks through messaging, wireless phones, Internet kiosks, etc., but
these attempts are for supply of information rather than for efficient control of the
supply chain or for supply demand matching. The logistics network is the one that is
often blamed for bad roads, lack of cold chain, manual handling, slow transport such
as bullock-carts or tractors.
Rural financial networks exist with the support of organisations such as the World
Bank. The aim of rural supply chain in India is to reach the ideal described above,
using Internet and other technologies, to create agility in networks. The rural supply
chain stakeholders and researchers can learn from the well developed industrial goods
supply chains. The idea is to transform the way agriculture works and create a
business orientation among farming community.
We need to reinvent rural supply chain networks using high technologies, keeping
in mind the inefficiencies and constraints imposed by the infrastructure and economic
environment. To do this, we have identified two value-delivery processes in the food
supply chain for re-engineering: the production and sale of commodities by farmers,
and rural retail network. First, we present a decomposition of rural food supply chain
into its component value delivery processes.
Operationally, the IRSN has four core value delivery processes. It is important that all
four processes are managed to work in harmony for the entire supply chain to be
competitive. The core business processes in a rural production organisation are as
follows:
The support processes assisting the above core business processes can be identified as
follows: technology, transportation including cold–chain, mobile communications
technology, knowledge processes – pre-harvesting and post-harvesting techniques,
handling, packaging, and processing techniques, resource management and marketing,
and finally financial services.
Modern Technology used in Supply Chain Management
The ISB Kisan bandhu (IKB) model has been developed by the faculty of Centre
for Global Logistics and Manufacturing Strategies (GLAMS). A proof of concept
experiment and also a total supply chain design study are currently underway at
the Centre. The primary function of IKB is to enable farmers to sell their produce
at a fair price. It consists of a cyber intermediary (information and business
exchange), a commodity exchange, and logistics provider, quality grading teams,
finance and insurance agencies. The cyber intermediary maintains an updated
database of registered farmers, logistics providers, brokers, retailers, mandi managers,
food manufacturers and exporters. It also has real-time market information,
commodity exchanges information trading different goods, and other marketing
information useful to the farmer. The IKB is a sophisticated exchange, with natural
language processing capabilities, and farmer can deal directly using his cell phone and
transact in his native language. The farmer can get feedback on processing of the
transaction on TV channel at prescribed timings. The IKB can also be used for
procurement of inputs for farming.
In India, rural retailing can get support from omnipresent post office. The rural retail
group places an order with the call centre via post office, which communicates the
order to the State Distribution Centre (SDC). The SDC will pass on the details of the
order to the district/local distributor located near the village. Depending upon the type
of order, goods can be delivered. All consumer durables can be delivered by post
office mobile vans. Perishable and FMCG goods can be delivered by road transport to
the post office, who can distribute it to the village retail group. The payment for goods
Modern Technology used in Supply Chain Management
will be handled by post office. Thus, IT enabling the post office, which is both a
delivery channel, as well as bank, will provide much needed supply chain visibility in
rural supply chain networks, in general, and retail networks, in particular.
There are several garment manufacturing and export centres – Ludhiana, Tiruppur,
Bangalore, Mumbai, Chennai, Jaipur and Delhi – exporting to USA, UAE, UK,
Germany, France and other EU countries. Major competitors are China, Bangladesh,
Indonesia, Sri Lanka, Pakistan and other Southeast Asian countries. There is a huge
opportunity – both in exports and domestic markets – for textile SMEs in Punjab,
provided there is attention to supply chain aspects like knowledge and information,
services like logistics and finance, and resource management. The Orchestrator model
(figure 17) is a widely popular model, based on the supply chain practice of several
MNCs, with a strong hold in the businesses of export sourcing, distribution and
retailing. In the above model, groups of SMEs, with competencies in several
production activities, necessary for manufacture of garments, fabrics, etc., partner and
coordinate with the product cycle. The supply and demand sides are bridged by an
orchestrator, who will pool the customer requirements and monitor production
activity, ensuring that there is appropriate matching between market needs and supply.
8. Conclusion
The future belongs to rural supply chains. With more than four billion people living
in rural areas, there is a tremendous need to focus attention on issues of product
designs, production, marketing and retail of food, and other electric and
communication items in rural areas at affordable prices. India has a huge
opportunity to become a leading global food supplier, as well as global garment
suppliers, if correct strategies are put in place and encouraged.
As the Case Study of Supply Chain Management, explains us the reason why Marico
Ltd is considered as India’s one of the top most FMCG Company. If we look at
current position then:
• Marico has India’s Most Trusted Brands
• Reaching over 25lacs Retail Outlets
• Rs. 23.9 billion (USD 478 million) Turnover
• In Beauty & Wellness Solution – Enjoying Leadership Position
• Overseas Consumer Product Franchise among the Largest for Indian Company
All this becomes possible because of effective supply chain management in Marico
Ltd.
Conclusion
REFERENCES
• Managing The Supply Chain – David Simchi-Levi, Philip Kaminsky & Edith
Simchi- Levi
• mySAP™ Supply Chain Management at MARICO
• Marico Industries: mySAP™ Supply Chain Management
By Janat Shah and Angeline Pantages (IIM – Bangalore)
• Defining Supply Chain Management by Journal of business logistics
Vol.22.No.2,2001
• Advanced Planning & Scheduling and Supply Chain Management by Brendan
McGettrick, Richard Sewell, Claire Sivills, PLAUT
• The Future of SCM an interview with Devid Simchi-Levi By Penny Guyer
• Supply Chain Management by Eric Johnson & David F. Pyke
• RFID in FMCG Supply Chain Management Application
• Insights : ECS Private Ltd
• Implementation of SCM Practices in Indian FMCG Industry by Ashutosh
Mohan
• ISB Insight Jun 2007:Supply Chain Delivering Value : Rural Supply Chain
Networks : The Future by N Vishwanadham
• Seven Principles of Supply Chain Management by David L. Anderson, Frank
F Britt & Donavan J. Favre – SCM Review 4/1/2007
• Internet Based Supply Chain Management by Sarvanan Raju, Pradeep
Rajendran & Vishveshwara Rao Kotapalli
WEB
• www.supplychainlink.com
• www.tutorialsto.com
• www.logictools.com
• www.scmr.com
• www.sap.com
• www.supplychainmanagement.in
• www.supplychainonline.com
• www.supplychains.in
• www.iimm.org
• www.metricstream.com