Supply Chain Management in India : Challenges and Opportunities

Greater and more intense competition between global value chains are leading to a substantial shift in the expectations from supply chains. India's complex operational challenges and increasing expectations make the job of a supply chain professional extremely difficult. In this article, we shall try to analyze the Indian scenario and provide some suggestions to chart the best way possible to create robust supply chains. Finally, we would conclude with a concise look at the initiatives being taken by the government, the industry and allied sectors to augment the supply chain infrastructure in India. 

Fig 1: The competition today is between value chains

The competition today is primarily between value chains. This makes it imperative to collaborate within the organization across following three levels,

•          Functional areas
•          Value chain 
•          Beyond the value chain

     With organizations being more diverse than ever, it is important to follow a tailored approach rather than a one size fits all approach. This differentiated approach will enable organizations to take care of different market and product needs. 

     Supply chain managers must be ambidextrous, able to see the bigger picture while also focusing on the details. In this regard, the single demand forecast for the entire organization can be the chief enabler with total cost optimization for capacity planning and scenario analysis for risk assessment. To take care of all stakeholders in the value chain from customers to vendors, supply chain professionals proactively need to apply pull replenishment strategies. This will invariably involve a solid information infrastructure, regular inventory calibration and removal of artificial demand distortions.

     The supply chains are becoming increasingly complex due to

•                       Broader product portfolios
•                      Shorter product life cycles 
•                      Increasing customer expectations 

      So it is important to actively manage supply chains. Going forward, it will be important to prune the non value added activities and capitalize the value added activities.

  

   We further look at the real-time problems faced by supply chain professionals and the unique characteristics in the Indian context. In India, the biggest bottleneck is the lack of proper logistics’ infrastructure. A lot more can be accomplished if there is better infrastructure and the ability to scale up to get products to far flung areas, especially small towns and villages. There is a huge opportunity once infrastructure bottlenecks are removed. The country has the potential to emerge as a supply chain centre of excellence for the world. The corporations need to build larger distribution centers in the interiors to consolidate access. The use of larger, efficient and appropriate vehicles is equally important. Another issue is the cost of movement in India due to long routes.

I    We compare the Indian scenario with the United States of America, the highway network in the US enables inter-state commerce system. It allows long-distance travel efficiently. In the US, for instance, a barge system for non time sensitive goods like copper or steel are moved in large quantities at low cost.  Similarly, India has a huge road structure but the same is not integrated to provide a strategic advantage. But if we can eliminate barriers and the congestion, and create a road or rail system allowing long-distance travel, then it helps in getting foreign investments in manufacturing. Retailers and Supply Chain Management companies would develop infrastructure and distribution centers. This will lead to consolidation and scaling up of distribution at lower costs.

    

     The cold supply chain in India is almost non-existent.The wastage of perishables that happens because there is no proper infrastructure for temperature control and refrigeration of goods is substantial. We have an to look at water, rail and road systems and connect them with ports. 

Fig 2: The cold chain logistics  

Now, we shall provide an overview of the initiatives presently underway to improve the supply chain system in India.

The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) was registered as a company under the Companies Act 1956 in 2006. This company under Ministry of Railways was conceived and formed to undertake planning & development, mobilisation of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. The construction of the Western Dedicated Freight Corridor from Dadri to Nava Sheva (total length 1483km) and the Eastern Dedicated Freight Corridor from Ludhiana to Dankuni (total length 1839km) is already underway. The construction of East-West Dedicated Freight Corridor , the North-South Dedicated Freight Corridor, the East Coast Dedicated Freight Corridor and the South-West Dedicated Freight Corridor is in the planning stage.

The mission of this major infrastructure push spearheaded by the government is to build a corridor with appropriate technology that enables Indian railways to regain its market share of freight transport by creating additional capacity, to set up Multi-modal logistic parks along the DFC to provide complete transport solution to customers and to support the government's initiatives toward ecological sustainability by encouraging users to adopt railways as the most environment friendly mode for their transport requirements. This would occur in tandem with the industrial corridors to be setup in India. 

An industrial corridor is a package of infrastructure spending allocated to a specific geographical area, with the intent to stimulate industrial development. An industrial corridor aims to crease an area with a cluster of manufacturing or other industry. Naturally, such corridors are often created in areas that have pre-existing infrastructure, such as ports, highways and railroads. The vision is to have a holistic network of high quality infrastructure, connectivity via all modes of transport accompanied by industrial clusters. These modalities are arranged such that an "arterial" modality, such as a highway or railroad, receives "feeder" roads or railways. Concerns when creating corridors including correctly assessing demand and viability, transport options for goods and workers, land values, and economic incentives for companies. Examples include the Delhi Mumbai Industrial Corridor Project and Chennai Bangalore Industrial Corridor.

Fig 3: The proposed Dedicated Freight Corridors 

All the major steps taken by government to improve infrastructure will ensure smooth transportation of goods with less bottlenecks. That will allow India to be a global player in field of supply chain management. It will also help in getting investment in manufacturing. The policy reforms are being overhauled through introduction of initiatives like Make in India, Skill India and digital India. 

About the Author:

The article is written by Gulshan Prakash. He is  PGP first year student at Indian Institute of Management Raipur.
 

An Insight into Apple's Supply chain

Agility or the ability to respond quickly and effectively to market demands has become an important competitive tool in the manufacturing industry. Companies that deploy global sourcing strategies need to balance the monetary benefits against the limitations of off shore productions. Improving supply chain performance is a key to achieving this, and the improvement largely depends upon the degree to which uncertainty can be reduced in the supply chain. As the industry saying goes "A dollar saved in the Supply Chain is worth 10 in the books". Supply chain management is one of the most important element in any business. And if you are the world's biggest company, it is all the more daunting. Apple has forever been known for its innovative products and awe inspiring designs but one factor that differentiates Apple in terms of services is their supply chain know-how.

Operations expertise is as big an asset for Apple as product innovation or marketing. Apple's new CEO Tim Cook may not be Steve Jobs when it comes to stunning the world with product launches or marketing campaigns, but he excels in the unglamorous but certainly essential task of managing a supply chain. Apple's operational efficiency can be affirmed by this example. When Apple's design master Jonathan Iverealized that the new MacBook should have a green light beside the webcam to indicate when it is turned on, the manufacturing team deemed it near impossible as it was not possible to shine light through a metal and they did not have equipment to drill such a small hole into the aluminum. To conquer this problem, Apple bought laser equipment from a U.S based company at $250,000 each machine (of course with an exclusivity agreement!) This shows the amount of dedication for the supply chain at Apple for something so small and hardly ever noticed by the customer. Apple's success has been credited to their ability to look from a user point of view and then work the supply chain backwards.

Apple is a very American company in many respects. But, their supplier management is more reminiscent of the Japanese way of doing business. Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. This coupled with the volumes Apple operates today, brings in a ruthless cost efficiency which results in astonishing profit margins that competitors can only aspire to reach. When iPods sales were at a peak in the early 2000s Apple started shipping directly to the customer from their Chinese manufacturing factories, thereby reducing heavy logistics and airfreight costs. In their retail operations, teams are given the go ahead to spend what ever is required to get around a bottleneck of not availability or defective items.

Weeks before the famed Apple product launches, key part manufacturers and assembling units work overtime to meet the announced date of delivery. To see through that before launch there are no fallacies in their secrecy Apple places electronic monitors in few boxes of parts that allow observers in Cupertino to track them through Chinese factories, an effort meant to discourage leaks. Manufacturing is where Apple really flexes its financial muscle to deal with suppliers. They select their suppliers through a very stringent process, which even requires them to declare the profit margin that they acquire by this agreement. Apple's bargaining tactics coupled with their financial muscle allows them to consume all of the supplier effort and concentration that rival companies' wait time for key parts is increased massively. Before the release of the iPhone 4 in 2010 many of mobile manufacturers were not in a position to source their requirement of screens, as most of the screen manufacturers were busy fulfilling their Apple contracts.

But Apple is not all about the pie, there is a dark side to the story too. Data suggests that 3% of supply chain workforce was putting more than 60 hours a week into assembling Apple products at Foxconn, China. Apple has been criticized for the appalling working conditions and army style discipline at the plant. Although these were actually better than many of the other plants in China and most of the multi-national manufacturing operates in these conditions in other parts of the country, Apple has been made a lightning rod for the issue given its reputation as the world's largest company. Responding to this criticism Apple announced a wage increase of 25% for workers at Foxconn and also declared that it will be increasing the staff from 500,000 to 800,000.

With such efficiency in the supply chain, Apple is able to earn huge profit of upto 40% while positioning at a similar price range as the competitors, who earn far lesser profit margins. With operations experts like Tim Cook at the helm as CEO and with over $100 billion dollars in cash reserves with continuous investment into operational efficiency, things are looking brighter than ever in the supply chain at One Infinite Loop. This emphasis on efficiency is set to keep Apple poised at the zenith of technology industry for a long time.

And yes we agree with Tim Cook, nobody wants to buy sour milk.

References
http://www.zdnet.com/apples-real-iphone-5-ace-its-supply-chain-7000004214/
http://www.huffingtonpost.com/2012/09/22/apple-supply-chain-tim-cook_n_1905674.html
http://www.computerweekly.com/news/1280092935/Apple-retains-the-best-supply-chain
http://www.idownloadblog.com/2012/09/29/three-percent-of-apples-supply-chain-workforce-doing-60-hours-a-week/

The article has been contributed by Varun Bora, who is presently a first year PGP student at IIM Raipur.  His areas of interest include adventurous sports & technology.  He can be reached at pgp12012.varun@iimraipur.ac.in.

Why Operations ?

Let’s start with some of the myths regarding a career in Operations Management. Many people wrongly associate it with years of toiling in a manufacturing plant in a remote location. Though this perception cannot be completely denied, the picture really isn’t as gloomy as it seems. First, there are various career choices (other than manufacturing) in Operations Management, which we will discuss shortly. Second, an experience of working on the shop-floor for just a few years in the beginning adds a lot of value to the manager, thus enabling a more comfortable work environment and steeper career growth for rest of the life.

Another very famous belief is that operations managers are paid less as compared to their marketing or finance counterparts. Again, it might be true for some of the career choices, but it cannot be generalized. Also, once a person rises above a certain level on the corporate ladder, the aforementioned disparities between the compensations tend to disappear.

On a positive note, a career in Operations Management is considered to be the most fulfilling, i.e. high on job satisfaction. It has also been observed that opportunities and growth in this field are less affected by recessions.

Some of the major subjects taught in Operations Management are:

·         Operations Management – This course focuses on understanding of different ways to create an efficient and effective production and service operations.

·         Manufacturing System Design - This course focuses on concepts and techniques relating to manufacturing systems design eg. JIT and TOC.

·         Total Quality Management / Six Sigma – The aim of this course is to emphasise the importance of quality in the competitive world and make the participants aware of the standards available.

·         Enterprise Solutions – This course aims to understand the functionality that ERP systems deliver, and to harness this functionality for the benefit of the organization and the managers who are the users of the system.

·         Supply Chain Management – According to APICS, SCM is “design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally”. This course aims to understand the basics and develop different strategies of SCM and logistics management.

·         Project management - This course provides the skills in executing various projects, starting from project identification till project termination.

·         Operations Strategy – This course is on evaluation of manufacturing decisions from their strategic fit to the firm’s products and market.

·         Operations Research – This course aims to provide a formal quantitative approach to problem solving and an intuition about situations where such an approach is appropriate e.g. Linear Programming.

·         Management of Technology - The main objective of this course is to present the concepts, techniques and applications that will be needed to understand, anticipate, acquire, and use technology for attaining a competitive edge at the market place.

Broadly speaking, the various career options for an operations student are

1.      Manufacturing/Production Management – The key responsibilities include manufacturing process optimization, product development and re-design, production planning, inventory planning and control, forecasting, quality control, standardization, and process analysis.

2.      Service Operations – Most of the responsibilities remain same as mentioned above, but in the services sector.

3.      Consulting – Many students are hired by consultancy firms which cater to the manufacturing and/or services organizations. A sound knowledge of the relevant subject and experience are usually required.

4.      Supply Chain Management – In the recent times, this channel has gained a lot of prominence owing to its vast applications and potential. Supply chain management has a very wide scope as it encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. It also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.

What to do before joining a B-school?

A prior and basic knowledge of MS Excel can be very helpful while attending the Operations Management courses. To get better clarity on some popular concepts, a bestselling management books can be read. The two most recommended are “The Goal” by Dr. E. M. Goldratt and “The Toyota Way” by Dr. Jeffrey Liker.

It is found that to excel in this field, one needs to have good problem- solving skills, quantitative and logical thinking. Graduates in Engineering, Mathematics / Statistics and Science are expected to do well in this field. Graduates from other streams also do well provided they have good logical reasoning skills and passion for Ops.

The writer of this article, Akshay Agarwal is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati. Akshay holds a Green Belt Certification in Six Sigma. Prior to joining IIM Raipur, Akshay has worked on various Value Engineering / Cost Cutting projects at Surya Roshni. 

WELCOME TO THE ONLINE ABODE OF OPEP, THE BLOG OF OPERATIONS COMMITTE OF IIM RAIPUR

       The Operations Committee at IIM Raipur, OPEP is responsible for facilitating sharing of knowledge about the latest techniques and schemes used in the industry.

       This blog, created on the auspicious occasion of Holi will serve as a place where the students of IIM Raipur will post their views on the latest developments in the field of Operations and Supply Chain Management. This blog will also keep the world informed about the latest initiatives taken by the Operations Committe of IIM Raipur.

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