What is SCM & Do we need it

Some companies: campus placement (Consulting & FMCG at IIMK)

Coca Cola, ITC, Kelloggs, Pepsi, Nestle, Cadbury, HUL, Asian Paints, Britannia Pfizer, Cipla, Raymonds, Arvind Brands, Tata Motors, Essar, Mahindra, Bosch etc. Mckinsey, Accenture, KPMG, Deloitte, PriceWaterhouseCoopers

Inefficiencies of Indian Agriculture

Indian wastes more fruits & vegetables than are consumed in UK Cumulative waste is about $ 6.7 billion which is equivalent to 40% of the total horticulture produce Poor infrastructure and logistics support Rough and unorganized handling India has 70% more arable land but produces 30% less than China

Supply-Demand Gap for Selected Food Item

Emerging Food deficit is a matter of grave concern Huge dependency in veg oils & Pulses on imports

Low Yield

An real Case: Potato Supply Chain

INDIA is the third-biggest producer of potatoes in the world. The humble spud finds itself stuffed into flatbread, encrusted in cumin seeds or tucked into pancakes. But the truckloads of large, oblong potatoes that arrive at the McCain Foods plant in the Mehsana district of Gujarat face a more exacting ordeal. Ferried by a conveyor belt and propelled by water, they are sized, steam-peeled, sliced, diced, blanched, dried, fried (for precisely 42 seconds in vegetable oil at 199C), chilled, frozen, bagged and then boxed. The 15kg boxes of fries that emerge at the other end of this pipeline supply the growing chain of McDonald's restaurants in India. When McDonald's first entered India in 1996, the food-processing industry was confined largely to ice cream and ketchup. Even importing frozen fries was complicated by the fact that such an exotic item did not appear on India's schedule of tariffs and quotas. It took McDonald's roughly six years and $100m to weld a reliable supply chain together.

An real Case: Potato Supply Chain

For fries, that supply chain begins with 2,000 acres of potato fields in Gujarat, cultivated by 400 farmers under contract with McCain Foods. These cultivators belong to a profession which still employs about half of India's workforce. In Gujarat, agriculture is growing almost as quickly as the rest of the Indian economy. But elsewhere, agriculture is said to be in crisis. The average size of farmers' landholdings is only about 1.3 hectares. If their fields are irrigated at all, they are flooded wastefully, with water flowing down furrows on either side of the crop, taking valuable nitrogen with it. India produces more tractors than any other country, but many farmers still use bullocks instead. They sell their produce at controlled prices in government mandis: marketplaces regulated by the state with the aim of protecting farmers from exploitation by unscrupulous traders.

What is Future of Food Processing Industry In India ????

India ranks first in the world in cereal and milk production and second in fruits & vegetables and in five producers of groundnut, rice, wheat, tea, coffee, sugar, spices & oil seeds. Even with an industry size of US $ 70 billion, we process less than 2%. The industry has about 1.6 mn direct employees and accounts for about 13% of the countrys exports and 6%of the industry investment.

Will Supply Chain Play Any Role ?? If yes then what is SC and what will it do ????

Views on Supply Chain

View 1: an integrated process where raw materials are
transformed into final products then delivered to customers.

View 2: a system whose constituent parts include material

supplies, production facilities, distribution services and customer linked together by feed forward flow of materials and feed back flow of information.

Views on Supply Chain

View 3: a complex, dynamic network or system of
interconnected and interdependent individuals, groups, companies, organizations, and relationships whose goal is to satisfy and add value to their particular customer.

View 4: a process of strategically managing the movement

and storage of materials, parts, and finished inventory from suppliers through the firm and on to the customers or an integrating process based on flawless delivery of basic and customized services.

Views on Supply Chain

View 5: an integrating process, used to build
competitive position, based on the delivery to customers of basic and unexpected services.

Changing Basis of Competition

Basis of Competition
Manufacturing company versus Manufacturing company

Yesterday

Today

Manufacturing company and its supply chain versus Manufacturing company and its supply chain

A picture is better than 1000 words!

- Important Players in a supply chain

Supplier

Manufacturer

Distributor

Retailer

Customer

Upstream Downstream

Why SCM Complex?:

Many-to-Many Relationships
Consumer Large Retail Customer Design Partner Manufacturer Component Supplier Manufacturer Raw Material Supplier Manufacturer Contract Manufacturer Logistics Distributor Distributor Distributor Small Retai Customer Reseller Reseller

Corporate Customer Logistics

Logistics

A picture is better than 1000 words!

Aims to Match Supply and Demand, profitably for products and services
SUPPLY SIDE DEMAND SIDE

Achieves
+ The right Product + The right Price + + + The right Customer The right Time

=
Higher Profits

The right The right Store Quantity

Supply Chain Defined

Supply Chain is defined, as a network of facilities and distribution options that: perform the functions of procurement of materials transformation of these materials into intermediate and finished goods and finally supply to its customer the right product at right price, time and quality. Material and information flows in opposite direction to each other in the supply chain.

Flows in a Supply Chain

Material Information

Supplier
Funds

Customer

Disjointed Agri Supply Chain.

Wal-Mart and Procter & Gamble (P&G)

Supply Chain Management

Supply Chain Management (SCM) is concerned with the management and control of the flows of material, information, and finances in supply chains. The task of SCM is to design, plan, and execute the activities at the different stages so as to provide the desired levels of service to supply chain customers profitably

Importance of Supply Chain Management

In 2000, the US companies spent $1 trillion (10% of GNP) on supply-related activities (movement, storage, and control of products across supply chains). Source: State of Logistics Report
Frequent Supply shortages Tier 1 Supplier Manufacturer Inefficient logistics Distributor Retailer Low order fill rates Customer High stockouts

Glitch-Wrong Material, Machine is Down effect snowballs

High inventories through the chain

Ineffective promotion

High landed costs to the shelf

Eliminating inefficiencies in supply chains can save millions of $.

What do customers want ?: Some Empirical Observations

Dissatisfied customer 15 to 40 percent of customers who say they are satisfied defect from a company each year It costs five to seven times more to find new customers than to retain current customers. 98 percent of dissatisfied customers never complain they just switch to other competitors.

What do customers want ?: Some Empirical Observations

Satisfied Customer Totally satisfied customers are six times more likely to repurchase a companys products over a span of one to two years than merely satisfied customers. A 5 percent reduction in customer defection can result in profit increases from 30 to 85 percent. If companies increase their customer retention by 2 percent, it is the equivalent of cutting their operating expenses by 10 percent.

Important points for Supply Chain Success

Minimizing supply chain costs while keeping a reasonable service level customer satisfaction/ quality/ on time delivery, etc. Supply chain success should be measured by total supply chain profitability, not profits at an individual stage i.e. global optimization

Important points for Supply Chain Success

Supply chain profitability is total profit to be shared across all stages of the supply chain Customer is the Sources of supply chain revenue: Concentrate on satisfaction Efficient flow of information

What can Supply Chain Management do?

Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealership Faster turnaround of the goods is better?

Laura Ashley (retailer of women and children clothes) turns its inventory 10 times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in the inventory. To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, Tennessee.

Magnitude of Supply Chain Management

National Semiconductor used air transportation and closed 6 warehouses, 34% increase in sales and 47% decrease in delivery lead time Compaq estimates it lost $0.5 B to $1 B in sales in 1995 because laptops were not available when and where needed P&G (Proctor & Gamble) estimates it saved retail customers $65 M (in 18 months) by collaboration resulting in a better match of supply and demand

Conflicting Objectives in the Supply Chain

1. Purchasing
Stable volume requirements Flexible delivery time Little variation in mix Large quantities

2. Manufacturing
Long run production High quality High productivity Low production cost

Conflicting Objectives in the Supply Chain

3. Warehousing Low inventory Reduced transportation costs Quick replenishment capability 4. Customers Short order lead time High in stock Enormous variety of products Low prices

Another Challenge : Satisfying Customer

Lead Time
VARIETY

Long
Responsiveness

Short
n o i t a z High mi
Changing Customer How to Do? Preferences
PRICE

to s u

Low

Co st

Low

How to Do?

High

Contributors to Implied Demand Uncertainty

Commodities Detergent
Price Low

Customized products High Fashion Clothing Customer Need Implied Demand Uncertainty
Responsiveness High

Short lead times, product variety, distribution channel variety, high rate of innovation and high customer service levels all increase the Implied Demand Uncertainty

Why Is Uncertainty Hard to Deal With?

Matching supply and demand is difficult. Forecasting doesnt solve the problem. Inventory and back-order levels typically fluctuate widely across the supply chain. Demand is not the only source of uncertainty. Other sources are may be:
Delivery Lead times Manufacturing Yields Transportation times Natural Disasters Component Availability

Key Issues in Supply Chain Management

Key Issues in Supply Chain Management

Issues are according to the time horizon:

Strategic Long-time effect on firm

Number, location and capacity of warehouses and manufacturing units.

Tactical - Medium range i.e. 4-12 months.

Purchasing and production decision, inventory policies, transportation strategies etc.

Operational Day-to-day decisions.

Scheduling, routing etc.

Key Issues in Supply Chain Management

Distribution Network Configuration:
Changing demand patterns, termination of leasing contract Selection of new suppliers, new flow pattern of goods/ information

Inventory control: when and how much to stock & order Distribution Strategies: centralized vs decentralized, impact of service level, mode of dist. Production sourcing & Supply Contracts:
Production vs sourcing decision (production vs transportation cost) Pricing and volume discounts, delivery lead time, quality etc. Revenue sharing contracts etc.

Integration and Strategic Partnerships: how to integrate & what information to share Procurement Strategies and Outsourcing Product Design Information Technology Customer value

Key SCM issues

Global Optimization Distribution Network Configuration Inventory control Supply Contracts Distribution Strategies Strategic Partnerships Procurement Strategies and Outsourcing Product Design Information Technology Customer Value Managing Uncertainty

XX XX XX XX XX XX XX XX XX XX XX XX

SEVEN PRINCIPLES OF SUPPLY CHAIN MANAGEMENT Industry View on SCM

By Anderson Consulting

Seven Principles of SCM

1. Group Customers by needs:
What is needed When it is needed How much of it is needed.

Effective supply chain management groups customers by distinct service needs--regardless of industry--and then tailors services to those particular segments.

Seven Principles of SCM

2. Customize the logistics network :
Product distribution is as important as product creation.

In designing their logistics network, companies need to focus on the service requirements and profit potential of the customer segments identified.

Seven Principles of SCM

3. Listen to signals of market demand and plan accordingly.
Sales and operations planners must monitor the entire supply chain to detect early warning signals of changing customer demand and needs. This demand-driven approach leads to more consistent forecasts and optimal resource allocation. ---Aggregate demand Streamline the information pipeline Streamline the distribution pipeline

Seven Principles of SCM

4. Differentiate the product closer to the customer.
Postponement Assemble-to-order

Companies today no longer can afford to stockpile inventory to compensate for possible forecasting errors. Instead, they need to postpone product differentiation in the manufacturing process closer to actual consumer demand. This strategy allows the supply chain to respond quickly and cost-effectively to changes in customer needs.

Seven Principles of SCM

5. Strategically manage the sources of supply
By working closely with their key suppliers to reduce the overall costs of owning materials and services, supply chain managers maximize profit margins both for themselves and their suppliers..

Seven Principles of SCM

6. Develop a supply chain-wide technology strategy
As one of the cornerstones of successful supply chain management, information technology must be able to support multiple levels of decision making. It also should afford a clear view and ability to measure the flow of products, services, and information

Seven Principles of SCM

7. Adopt channel-spanning performance measures
Excellent supply chain performance measurement systems do more than just monitor internal functions. They apply performance criteria to every link in the supply chain criteria that embrace both service and financial metrics, including as each account's true profitability

Relationship between Supply chain Principles and Financial outcomes

7 Principles Segment customers based on needs Customize logistics network Listen to market signal and plan accordingly Differentiate product closer to customer Source Strategically Develop SC technology strategy Adopt channel spanning measures Revenue Growth HIGH Asset Cost Utilization Reduction Medium

Organizational Paradigms
Paradigm Shift
From functions to process From products to customers From revenue to performance From inventory to performance From transactions to relationships

Leading to
Integral management of material and information flow Focus on markets and the creation of customer value Focus on the key performance drivers of profit Demand based replenishment and quick response systems Supply chain partnerships

Skills Required
Cross-functional management and planning skills Customer segmentation

Understanding of the time based performance indicators Information management

Relationship management

The Development Chain

The enterprise development and supply chain

2013 Gartner Supply Chain Top 25:Asia/Pacific (Published: 14 August 2013)

2013 Asia/ Pacific Ranking 1 2 3 4 5 6 7 8 9 10 2013 Overall Ranking 8 20 32 33 36 58 71 85 91 94 Company Samsung Lenovo Haier Hyundai Motor Tata Motors Toyota Motor Flextronics Honda Motor Canon LG Return on Assets (ROA) 1 11.6% 2.5% 9.0% 9.3% 7.0% 1.0% 3.8% 2.7% 6.0% -1.6% Inventory Turns 2 18.5 22.2 10.5 18.6 6.3 10.7 7.7 6.7 3.3 20.0 Revenue Growth3 15.7% 29.8% 17.3% 8.4% 33.1% -2.5% 2.7% -7.1% 0.8% -6.8%

2013 Gartner Supply Chain Top 25:Asia/Pacific :

Key Findings
Economic growth in the Asia/Pacific region showed mixed results in 2012. Growth in key countries, such as China and India, slowed down, whereas some Southeast Asian countries grew modestly. Supply chain leaders are increasingly required to contribute positively to business growth while facing volatile demand, stiffer competition and increased globalization. Supply chain resilience is high on the agenda of most organizations in Asia/Pacific as they recover from the impact of disruptions in previous years and look to build risk management capabilities. Rising costs, a tighter labor market, a shortage of talent and regulatory pressures continue to weigh on Asia/Pacific supply chains, with many organizations re-evaluating their supply networks.

2013 Gartner Supply Chain Top 25:Asia/Pacific :

Recommendations
Align your supply chain strategies to address the needs of increased globalization while ensuring regional alignment through effective demand sensing and shaping, improved product localization, lean manufacturing, and supply network optimization. Develop capabilities to rapidly revise your supply plans. Consider multiple scenarios and what-if analysis to improve perfect order fulfillment, and to ensure a profitable demand response, while dealing with uncertain demand in Asia/Pacific. Work to establish multitier supply chain visibility supported by advanced analytics to deal with network diversity, and supply-side risks and complexities in Asia/Pacific supply chains. Prepare for end-to-end supply chain management in the midterm. Set a strong foundation for talent acquisition and retention by understanding

2013 Gartner Supply Chain Top 25 (Global): Published: 22 May 2013

1. Apple 2. McDonald's 3. Amazon.com 4. Unilever 5. Intel 6. Procter & Gamble 7. Cisco Systems 8. Samsung Electronics 9. The Coca-Cola Company 10. Colgate-Palmolive 11. Dell 12. Inditex 13. Wal-Mart Stores 14. Nike 15. Starbucks 16. PepsiCo 17. H&M 18. Caterpillar 19. 3M 20. Lenovo Group 21. Nestl 22. Ford Motor 23. Cummins 24. Qualcomm 25. Johnson & Johnson

2013 Gartner Supply Chain Top 25:

Key Findings
Three key trends emerged among the leaders: finding new synergies across best practices, partnering more productively for growth and inspiring the hearts and minds of their supply chain talent in new ways.

2013 Gartner Supply Chain Top 25:

Recommendations
tailored performance through advanced capabilities such as end-to-end segmentation, cost-to-serve analytics, multiply supply chain visibility and supply network optimization. Form a cross-functional team composed of sales, marketing, supply chain and IT to design a holistic new market strategy, and enable local operations supporting new geographies and products for your business groups. Set aspirational goals and connect the dots between the work people do every day in supply chain and its contribution to the societies within which they live, building engaged supply chain talent that can lead business growth.

WHAT IS RIGHT SUPPLY CHAIN FOR YOUR PRODUCT

Devising an effective Supply Chain Strategy

Step 1: Consider the nature of demand for the products

FUNCTIONAL DEMAND

INNOVATIVE DEMAND

Depends on: Product Life Cycle (PLC), Demand Predictability Product Variety Market standards for lead time Service level

Physical Function For Functional Product

The predictable demand makes market mediation easy as nearly perfect match of supply and demand is achieved. Focus on minimizing physical cost, given price sensitivity of most functional products.

Market mediation for Innovative Products

High risk of shortage and short PLC leading to obsolescence makes market mediation function essential for innovative products. Critical decision:
Inventory and capacity management and not minimizing cost Position of inventory and available production capacity

Made-to-stock environment
Efficient SC to Market
Product characteristics Stable, predictable demand & life cycle time Low level of demand uncertainty Low margin

PUSH Inventory of Finished goods

Functional products Retail products, Food cans, beer, drinks, Pasta, baby diapers Etc

All production and distribution decisions are made on long-term forecasts

Forecast are always wrong, The longer the forecast horizon, the worst the forecast Aggregate forecast are more accurate. (risk-pooling concept.)

Made-to-Order environment
Responsive SC to Market
Product Characteristics Unpredictable demand Short life cycle time Great variety High margins

PULL Inventory of Parts & assemble on order

Innovative Products All sorts of industries : High tech industries Computer (Dell), Fashion ..etc

Decisions based on Accurate Customers Demand

Ensure that the variety of products reaching the market place matches what customers want to buy

Functional vs Innovative Products: Differences in Demand

Aspects of Demand
PLC Contribution margin Product variety Functional (Predictable demand) More than 2 years 5-20% Low (10-20 per category) Innovative (Unpredictable demand) 3-12 months 20-60% High (often millions of variants per category) 40-100% 10-40% 10-25% 1-14 days

Forecast error margin at the 10% time production is committed Average Stock out rate Ave. forced end of season markdown as % of full price Lead-time required for made to order products 1-2% 0% 6-12 months

Contribution margin = (price variable cost)/ price

Physically Efficient Vs Market Responsive Supply Chain

Physically Efficient Process Primary Purpose Supply predictable demand at the lowest possible cost Market Responsive Process Respond quickly to unpredictable demand in order to Manufacturing Focus Inventory Strategy Maintain high average utilization rate minimize stock outs, forced markdowns and obsolete inventory

Deploy excess buffer capacity

Deploy significant buffer stocks of Generate high turns and minimize inventory parts or finished goods throughout the chain

Physically Efficient Vs Market Responsive Supply Chain

Physically Efficient Process Market Responsive Process

Lead-time Focus

Shorten lead time as long as it does not increase cost

Invest aggressively in ways to reduce lead time Select primarily for speed and flexibility Use modular design in order to postpone product differentiation as long as possible.

Approach to

Select Primarily for cost and

choosing suppliers quality Product-design Strategy Maximize Performance and minimize cost

What Strategy for your products?

Is your product functional or innovative? Should your SC be physically efficient or responsive to the market? Where in the SC to position inventory and available production capacity in order to hedge against uncertain demand?

Managing Supply Chains With Products

Functional Products Efficient Supply Chain Responsive Supply Chain Innovative Products

MATCH

Mismatch

Mismatch

MATCH

Hau Lees SC Uncertainty Framework

Demand Uncertainty Supply Uncertainty Low (Functional products) Low (Stable Process) High (Evolving Process) Efficient SC Ex.: Grocery Risk-Hedging SC Ex.: Hydroelectric power High (Innovative products) Responsive SC Ex.: Computers Agile SC Ex.: Telecom

Success story of India

But after several years of experimentation, McCain can now supply all of McDonald's needs in India, as well as producing some creations of its own, like Masala Fries. We used to struggle for size; now we struggle to reduce the size, says Devendra Kumar of McCain India. McCain's agronomists would first visit farmers like Mr Patel every other day. Now they check in once a week. They insist that farmers give up flooding their furrows with water in favour of drip irrigation, which flows through a pipe punctuated with small nozzles laid along the crop-bed. Drip irrigation produces more crop per drop, as Mr Pelletier puts it. It moistens the soil at each root, but leaves the ground otherwise dry. This in turn reduces the humidity that attracts pests and blight.

Will discuss the following newspaper adv. In last one year during the interaction..
Dreamliner Problem for Boeing Toyota, Nissan and General motors Product take back Walmart in India.. Impact of Lower drug pricing in India.. Microsoft recent swallowing Nokia (Last week) Why onion prices are cheaper in retail than mandi Amul success, failure/growth story & challenges..

THANK YOU