Make your supply chain your competitive advantage
The article discusses about how supply chain manager’s role is often not understood well by the youngsters. A supply chain manager needs to organize many duties and responsibilities at a go and hence the supply chain manager collaborates with other corporate functions. The supply chain executive/manager can introduce many innovations to facilitate innovation in marketing efforts. A healthy supply chain can lend rock support to the marketing function of the firm. Firms depend heavily on supply chain consultants these days. The greatest skill of a supply chain consultant is normally the ability to immediately assess inventory costs and put plans in motion to reduce blocks in the outbound logistics. Supply chain experts typically try to match an inventory management approach that meets the company’s marketing philosophy. They provide companies with the tools needed to lower their month-to-month carrying charges of inventory.
In today’s over competitive business world managing the firm’s supply chain brilliantly is one of the strategic responsibilities. A well designed supple supply chain can be firm’s competitive advantage and it can support firm’s value chain. Today companies are under increasing pressure to reach out to their far-flung markets. Buyers want the products and services available to them as swiftly as possible; therefore companies are pressed to deliver when customers are ready to buy. Organizations are taking inputs directly from their customers. Customers are also in constant touch with firms; they are directing the firm’s supply chain right from what goes in the product, timing of the launch, packaging, price and delivery. And therefore, in this emerging world of demand-driven markets the supply chain plays a crucial role. It must not only be flexible and cost-effective, it must be able to respond directly to customer’s call.
Necessity is the mother of inventions. When people are hard pressed for finding solutions to their problems, they will figure out a ways to find them. This means people think laterally when they have to struggle, when they need to fight odds, when they are pushed to the corners. Since the beginning of human life, enormous changes around us have taken us to a path of scientific progress, which in turn has benefited mankind in a number of ways. In every era, men invented many things in order to cater to their rising needs. I would like to showcase in article how some great companies have brought in innovations and strengthened their supply chains.
This article is based upon pure desk research. The desk research technique is mainly acquired by sitting at a desk, using secondary data from various sources such as internet, newspapers, journals and magazines. My 20 years industry experience in the field of sales and marketing and later as my research in Marketing, has taught me that if a products however good it is, if not available when customers wants it can lose out its preference forever.
In a news item published in Economic Times dtd 8th June 2011, the former Finance minister Pranab Mukherjee asked chief ministers of all states in India to ‘urgently’ look into the supply chain of items and remove the bottlenecks that are driving food inflation in the country. In a letter to all the chief ministers, Mukherjee said particular attention should be paid to the local factors that are widening the gap between the wholesale and retail prices. The Food Corporation of India recently reworked its supply-chain management. It took help of some leading consultants to reduce the bottlenecks. The nodal agency that procures and distributes food grains across the country annually buys 250 lakh tones of wheat and 300 lakh tones of rice. In 2010-11, it lost a whooping sum Rs 482 crore due to lack of storage facility and constant transiting of food grains.
Food Corporation of India(FCI) uses linear programming technique to manage movement of stocks, this technique has a limited use as all loading railheads and recipient railheads cannot handle full rakes. At times, demands of nearby railheads are combined so that a full rake is used to reduce operational cost and time. Food grains are transported from surplus regions, such as Punjab, Haryana, Andhra Pradesh, Madhya Pradesh and Chhattisgarh, to deficit regions. A detailed monthly movement plan is charted out to help the Railways in allotting rakes and ensuring smooth movement of food grains. In September 2010, the Supreme Court asked the state-owned Food Corp. of India (FCI) to expand and modernize its distribution infrastructure, and noted that 50,000 tons of wheat had already worsened. The case brought renewed focus on the interlinked challenges of feeding India’s population and overhauling its food grain procurement, storage and distribution infrastructure.
According to West Bengal Governor, Mr. M. K.Narayanan, better supply chain management will help reduce inflations in the price of agro-products. Due to lack of proper governance of supply chain there is a huge wastage of food grains in India.
While on one hand when we see the Government failing to take the right measures to improve the supply chains, the private sector is using innovative techniques to combat bottlenecks in supply chain. Companies like Hindustan Unilever, ITC, and Godrej support their marketing channels such as wholesalers, retailers, stockiest for effective sales to nook and corners of the nation. In rural India mandis are emerging as the target centers for direct sales. BPCL (Bharat Petroleum) has introduced specially designed Rural Marketing Vehicle, which moved from villages to villages to fill gas cylinders on spot.
Another innovative distribution model that merits mention is the HLL’s Shakti project, which connects Self-Help Groups (SHGs) with business opportunities. Hindustan Lever promotes and uses the SHGs network present in the villages for increasing its sales in the rural areas. The SHGs are offered chance to become company’s local small scale distributor in the rural areas. The groups, typically of 15 to 20 people, buy a small stock of items such as soap, detergent or shampoos and then sell directly to consumers in their homes. The model is a win-win for the company and the village SHGs.
A supply chain that responds directly to customer needs may look quite different from the supply chains of the past. For one reason that today firms rank distribution function at the top of the value chain. Supply chains need some of the following characteristics
Here visibility means an array of record and movement of goods with the right processes. The recording of the movement, events, and patterns that enable the automation allow accurate expectedness, this also enhances dynamic responses of all stakeholders in the business. Today supply chain professionals are insisting on the need for more visibility. After re-inventing the category of express parcel shipments, FedEx went a step further in the mid-1980s with its development of a new computerized tracking system that provided near real-time information about package delivery. Outfitting drivers with small handheld computers for scanning pick-ups and deliveries, a shipment’s status was available end to end. The Fedex system really drove the idea that information of the package movement was as important as the package itself. I must say that Fedex laid foundation of our current supply chain visibility concepts.
The supply chain professionals are realizing that the emerging markets in the globe are driven by middle class buyers who are cost conscious, always eager and demanding. Hence, supply chains need to adapt to the costing factor of firms. In 1982, 3M, like every other company, had to leave transportation decisions to each plant and distribution center. Roy Mayeske, at that time the Executive Director of 3M Transportation, got the idea to centralize transportation planning to look for network synergies. 3M took mainframe software being used by Schneider National – one of its major carriers and modified it to be workable from a shipper perspective. This enabled 3M to plan shipments, logical routing, curtail time gaps and intervals. Roy Mayeske thus brough a huge change to the company’s supply chain. Costs were cut, time was saved and most important damages and wastes saved.
A dynamic supply chain needs to respond to rapid reactions in crisis by keeping the response time short. Progressive companies in the world recognize importance of efficient communication and they take help of social media. Social media tools, like blogs, can be more effective in encouraging and idea sharing. TEVA Pharmaceuticals – a Canadian Pharma company has recognized that the speed of supply chain is about people talking to people. TEVA has beautifully harnessed the power of social media to reduce barriers in communication between internal functional groups and external functional group. Their VP –Supply Chain rests his decision by communicating with channels, suppliers, customers etc on social media sites. He says that social media has resulted in a “spontaneous association” between him and their customers.
Collaborating supply chain with value chain of the firm
Firms recognize these days that they need to team up with the right supply chain partner to enhance their value chain. Partnering with a good logistic firm for the movement of supply chain improves sales forecasting of the firm by getting closer to the points of demand and methodical supply. It strengthens strategic relationships with suppliers and marketing channels, enhances sales and operations planning to achieve corporate goals. An automated monitoring makes the supply chain hassle free.
Square D, a division of Schneider Electric, which is based in Palatine, Illinois, provides a good example of a nonlinear development flow in the electrical controls and automation management industry. Demand-driven innovation is an important part of Square D’s business, and the company actively engages its customers in developing new products. But instead of simply submitting specs for a desired product and waiting for Square D to produce it, customers collaborate online or on the phone with order engineers. Customers are allowed to talk to designers to suggest their own ideas or push back and forth on features. This however does not create hurdles in the manufacturing process. The nonlinear program in their production process has made back-and-forth process easier, richer, and faster than it would be otherwise. The organization is always ready for innovating new designs of switches and circuit breakers. The supply chain managers are ready to plan ahead at the early stages of product development. Square D never compromises on the standard of components. Everything on the shop floor goes from step to step crisply. The overall result of Square D’s nonlinear flow helps the company a 30 percent reduction in order-taking cycle times.
Wal-Mart’s innovation in supply chain
In its persistent quest for low consumer prices, Wal-Mart embraced technology to become an innovator in the way stores track inventory and restock their shelves, cutting costs and passing the savings along to customers. In the process the company became synonymous with the concept of successful supply chain management. Through a combination of distribution practices, truck fleet management and technological innovations Wal-Mart became the model of supply chain efficiency. Wal-Mart’s core competency lies in its supply chain management. Wal-Mart showed the world that Supply chain management is moving the right items to the right customer at the right time by the most efficient means. In the 1980s Wal-Mart began working directly with manufacturers to cut costs; it went cutting costs because of eliminating the intermediaries. From 1993 to 2001, Wal-Mart grew from doing $1 billion in business a week to $1 billion every 36 hours.
Under a Wal-Mart’s supply chain initiative called VMI (vendor managed inventory) manufacturers becomes responsible for sending the supplies directly to Wal-Mart’s warehouses. As a result, Wal-Mart is assured of 100 percent order fulfillment on merchandise.
Wal-Mart developed the concept of “cross docking,” or direct transfers from inbound or outbound truck trailers without extra storage. The company’s truck fleet and corps of non-unionized drivers continuously deliver goods to distribution centers (located an average 130 miles from the store), where they are stored, repackaged and distributed without sitting in inventory. Goods will cross from one loading dock to another, usually in 24 hours or less, and company trucks that would otherwise return empty “back haul” unsold merchandise. Collaboration Companies within the supply chain synchronize their demand projections under a collaborative planning, forecasting and replenishment scheme, and every link in the chain is connected through technology that includes a central database, store-level point-of-sale systems and a satellite network.
Wal-Mart is the first company in the world to implement ‘Universal Product Code bar codes’. Through the bar codes store level information can be immediately collected and analyzed. Through a global satellite system the retail link is connected to analysts who forecast supplier demands effectively. In recent years, Wal-Mart has used radio frequency identification tags (RFID), which use numerical codes that can be scanned from a distance to track pallets of merchandise moving along the supply chain. Even more recently the company has begun using smart tags, read by a handheld scanner, that allow employees to quickly learn which items need to be restored so that shelves are consistently stocked and inventory can be closely watched. Wal-Mart reaps the benefits of its supply chain management by saving time, faster inventory turnover, increased warehouse space and accurate forecasting of inventory levels.
In another case from close home – in remote districts like Gadag chemists had to ensure that medicines are stocked well and can be offered during emergencies. Unfortunately, chemists such as Maranabasari had to wait for an emergency before reaching out to a distributor for life saving drugs, losing precious many hours for medicines to arrive.
Maranabasari found answers to his dilemma in the US army’s Global Combat Support System (GCSS); this is an Enterprise Resource Planning (ERP) commercial off-the-shelf application capable of managing a large volume of business transactions within a single database. It was was originally developed by Anup Akkihal, an Indian born in West Virginia. Maranabasari used it with several other chemists in the district, by paying Rs 100 every month for a software solution that tracks demand, sales and movement of drugs – all on a simple to use handset that does not need any fancy technology. Of course, the chemists had a tough time learning the usage of this technology.
Akkihal, a post graduate in logistics from the Massachusetts Institute of Technology, found his inspiration to develop the software while working on a US Army project with defense contractor Northrop Grumman during July 2006. While working for the US defense, Akkihal realized that back home this technique could be used for the chemists’ solution of stocking life saving drugs. He along with his team, worked with local chemists like Maranabasari to develop a solution that could solve their problems in a simple, effective way. The solution developed by Akkihal, who sells the software through his firm Logistimo, is now gaining grip and holds potential for solving supply chain management problems faced by many village entrepreneurs in the country, experts say. Logistimo’s solution is finding takers in remote villages and districts of Africa.
Today, the World Health Organization (WHO) uses Logistimo’s technology to track the vaccines for the immunization drive in Tunisia since most regions there are not well connected to internet. It seems in past pipelines were used to send vaccines to remote villages; it was difficult to understand where the vaccines were. Kudos to Logistimo! It works on simple technology and not expensive.
3 PL & 4 PL: Indian firms have started using Third Party Logistics (3PL). Third party logistics providers typically specialized in integrated operation, warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials. These companies offer services that can allow businesses to outsource part or the entire supply chain management function. Many 3PL companies offer a wide range of services including; inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. Firms opt for 3PL so that they can operate without much baggage; they become leaner by reducing assets and allowing focus on core business processes.
Globally the growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business. The increased awareness and usage of information technology due to revolution in IT services gave way to 3PL firms. One such firm which took the lead in 3PL revolution is Fedex. Its overnight delivery services changed the logistics format for plentiful firms all over the world. It offered business operations the technique of just-in-time techniques which in turn allowed firms to save investments on warehouses, usage of space and reduce overall business cost.
3PL industries originated in India after 1990. The industry was pioneered by global logistics majors as a part of expanding these services to the Indian subsidiaries of multinational companies in automobile, electronics and FMCG sectors. Indian subsidiaries of multinational companies in these sectors took cue from their parent companies and began to outsource a share of their logistics functions to these specialist service providers. Though insignificant in the first few years, Indian 3PL industry is experiencing a rapid growth after year 2000. The number of participants in this industry had grown to be more than 400 by year 2005. The Indian 3PL industry can be divided into threedistinct tiers – National Major 3PL companies with nationwide presence, Regional 3PL companies with strong presence in one or two regions, and Small Remote 3PL companies
4PL business is still at budding stage in India; they provide a wide range of value-added services that can range from business process analysis to hand work such as assembly, packaging and configuration besides the core activities of logistics. 4PL companies are hired by firms which engage services of 3PL. The term “4PL” was actually coined by the consulting group Accenture. In fact, they also hold the trademark to the name 4PL. Accenture defines a 4PL in the following manner: “A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design build and run comprehensive supply chain solutions.”
In 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL. Some large Indian firms in various sectors have invested heavily on logistics whereas sectors such as cement, FMCG, electronics, consumer durables, automobiles, pharma, food processing and the colour & paint sectors are among the chosen sectors which rely heavily on 3PL & 4PL logistics. While multinational logistics firms such as SembCorp, Exel and BAX, have made way into Indian lands couple of Indian firms such as GATI and TVS Logistics are also slowly changing the way products and materials are distributed.
Globally most of the Fortune 500 companies have opted out hiring services of 4PL. In India, IBM, Dell, Nike and Philips have handed over their logistics operations to 4PLs. Much of the 4PL service includes execution of activities directly or through 3PL service providers. The logistics activities and solutions have started covering compilations of orders, planning the dispatch, physical transportation, in-transit monitoring, confirmation of deliveries, payment to be made to the transporters plus providing MIS to the client and the entire gamut of physical distribution function.
Geographic multiplicity of India needs varied logistics expertise as each region has its own troubles. Logistics posses a main challenge in the growing Indian trade. Along with diverse geographic scenario h a diverse cultural and regional buyer behavior has made logistics operations complicated in India. The buyer behavior in each state varies from the other, coupled with the geographical diversity of each state. Each state requires a tailor-made logistics model. Today, we require multiple solutions logistics companies to suit the nationwide logistics needs. Hope the administration is hearing.
India faces infrastructure limitations which in turn challenges the logistic company’s work also. The congested roadways and heaving ports are resulting in significant delay in movement of goods, affect the performance of 3PL service providers; similarly, lack of sufficient warehousing and specialized storage facilities beyond major cities of the country result in 3PL service providers to restrain from offering warehousing services across the country, hence resulting in their failure to become the complete logistics service providers for clients. Perhaps, allowing these firms to construct their own warehousing facilities in strategic geographic locations and specific regions, could address this problem. If this strategy is adopted by the government then such geographic locations could be designated has warehousing hubs. Over and above, complex tax structures and corruption coupled with erratic bureaucratic control are some other hassles faced by logistics service providers in providing the best of logistics solutions for their clients.
Increased Use of Supply Chain Consulting
Inventory is usually an extremely important aspect of operational costs for many companies and must be managed with the most cost-efficient method possible in order to see profits. Firms today face rough challenges such as whether the firm has supply chain visibility; this structural issue includes the complexity of the product, the nature of the technology the firm uses and at what degree the brand loses its uniqueness and faces challenge of commoditization at each point in the supply network. The second challenge being how much visibility is good visibility; firms are cautious about their supply chain details as these details are of strategic importance. The information can be misused to sabotage a firm’s business plans, and its existence itself. The third challenge being how does a firm behave when it confronts risk? Firms need to juggle with market changes, new product launches and specific distribution for them, handling marketing channels with a difference for new products and existing channels for older products with a different treatment, sourcing, new acquisitions, credit availability, protecting intellectual property, R&D and its results, shipment security, maintaining cordial relations with suppliers and distributors etc. Supply chains must periodically be assessed and redesigned in response to market changes. In addition, supply chain risks must be identified and quantified.
Firms depend heavily on supply chain consultants these days. The greatest skill of a supply chain consultant is normally the ability to immediately assess inventory costs and put plans in motion to reduce their impact. Supply chain experts typically try to match an inventory management approach that meets the company’s market, industry, customers and its business philosophy. They provide companies with the tools needed to lower their month-to-month carrying charges of inventory. A supply chain consultant may have a degree in logistics or supply chain management or may simply have enough years of experience within logistics and management to be considered an expert in the field. I see a great future for careers in supply chain as managing supply chain professionally is need of the hour!