Future Supply Chains: on Cloud Nine with Cloud Computing

Last month, Pfizer, one of the major global pharmaceutical giants, completed transforming its complex and sensitive supply chain into a robust, more efficient and well-insulated one by moving it to “the cloud”. Needless to say, Pfizer isn’t the first company to do it. Philips, DHL, Nestle and Hewlett Packard are some of the other organizations who are already enjoying the fruits of mounting their respective supply chains on “the cloud”, and many more are likely to follow suit.

Let’s start by understanding the definition of cloud computing or “the cloud”. The National Institute of Standards and Technology (NIST), U.S. Department of Commerce, defines cloud computing as follows:
“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”

The above definition is a brief, but somewhat exhaustive description in itself about the underlying benefits and attributes of this technology. It is widely believed that cloud computing could be the answer to the following woes of the modern supply chains:

1. Increasing Complexity: Globalization and internet have made it possible for organizations to build huge, global supply chains. But to manage them is a whole different game. And as these networks get more complicated and bulky, they might even fail to meet the very purpose they were built for. “The cloud” enables seamless sharing of information between the many partners (vendors, suppliers, buyers etc.), hence allowing them to function in sync with each other and take quick decisions to maximize profitability and efficiency of the whole supply chain.
2. High Set Up Costs: Cloud computing allows one to do away with the otherwise essential expenses - procurement of expensive software, building and maintaining infrastructure and hiring people to operate the system. So it is much cheaper and easier to set up. Besides, it allows the popular “pay as you use” model. All of this while providing any time access to the services.
3. Problems with Legacy Apps: The traditional on-premise enterprise software solutions are called legacy applications. Though in many cases, they might be good enough to handle the supply chain challenges at the present, the pace of change is high in this field. And upgrading legacy apps can be very tedious. Modern cloud based solutions are built to be highly configurable and adaptable in anticipation of rapid changes in the business.
4. Rising Competition: The famous adage “Organizations don’t compete, supply chains do” could have never been more correct. Since cloud computing is known to enhance the efficiency and productivity of the supply chain, it provides a significant edge over the competition. It has already been established that this technology will only accelerate the speed with which new products and service reach the markets.
5. Low Flexibility: Each organization or business has its own requirements that it expects its supply chain to meet. Going back to the case of Pfizer, it is worth mentioning that the company competes in two distinct drug markets – “patented” and “generic”. While the former calls for speedy and agile delivery strategies, even at higher costs, eg. overnight air delivery, the latter favours highly optimized logistics and tight control over inventory. Cloud computing ensures that the supply chain is flexible and adaptable enough to cater to such varied needs of the organization.


Now that we have listed almost all the benefits that come with “the cloud”, a few words of caution wouldn’t hurt.
1. Implementing cloud technology might require a lot of time (Pfizer took 18 months). More importantly, the decision to go for it usually involves several partners in the supply chain, which makes it vulnerable to even minor conflicts between these parties.
2. It should not be taken for granted that cloud computing would fit all the requirements of any supply chain or organization. Meticulous research is advisable.
3. Security of data could be a problem in cloud-based supply chain. This factor has gained even more prominence with some recent events which indicate the importance of securing one’s intellectual property.

In conclusion, it can be said that for most organizations, switching to cloud-based supply chain is a matter of “when” rather than “if”.


References
1. http://www.supplychaindigital.com/outsourcing/cloud-computing-in-the-supply-chain
2. http://www.logisticsmgmt.com/article/cloud_computing_and_supply_chain_a_natural_fit_for_the_future/
3. http://www.ft.com/intl/cms/s/0/1608e5d6-fc59-11e1-ac0f-00144feabdc0.html#axzz2AfeOg9o8
4. http://csrc.nist.gov/publications/nistpubs/800-145/SP800-145.pdf


This article has been written by Akshay Agarwal. He is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati. He can be reached at pgp11004.akshay@iimraipur.ac.in.

Experience : Industrial visit to Bhilai Steel Plant

Industrial visit to Bhilai Steel Plant, a Government of India undertaking had been organized by OPEP club of Indian Institute of Management Raipur on 18th Oct’12. A batch of 57 students, 55 from Post Graduate program and 2 from Fellowship program participated in the industrial visit. It was a great opportunity for all of us to gain knowledge about the technical and managerial work flow and operations of manufacturing industry.
Bhilai Steel Plant is one of the largest producers of Steel rails in the country with annual production capacity of 3.153 MT of saleable steel. It was established in 1955, with the collaboration of India and Russia. The main consideration of setting up the plant in Bhilai is because of the easy availability of Iron ore near the city. The Iron ore of BSP comes from 3 mines, Dalli Rajhara, Nandini and Hirri.
In the industrial visit we were accompanied by  Mr. Panna lal, to be with the students and explain the processes, and functioning of the departments. First department which we came across was Rail & Structural Mill, we were explained how raw material is converted in to the rails of various length. The set up of the process was autonomous and so well designed that it was self illustrative in itself. We saw the complete production line of the rails and also the raw material and finished goods inventory. The other products manufactured in this department were angle, rods and TMT bars.
Then we headed to Blast Furnace, there were 6 Blast Furnaces. It was a fantasy to watch hot sparkling metal flowing and getting collected into a container. It was amazing to witness the performance of those tough and automatic processes, one needs to appreciate the human precision and brain who have designed them, which made all the complex process simple and perfect.  The next department in line was coke oven, where we saw how COKE is prepared, which is the input for the blast furnace and the purest form of coal. Apart from these we also visited Merchant Mill, Wire Rod Mill, Steel Melting Shops and Plate Mill.
The industrial tour was concluded by the warm and energetic interaction with the DGM-HRD Mr. TCS Prasad, who had promptly arranged all the necessities for the tour. We also thanked Mr. Prasad for his support to make the trip as educative as possible.
I am very thankful to all the members of the OPEP club for organizing and streamlining the very educative and exhaustive industrial visit for us.

The article has been contributed by Namrata Sharma, who is presently a first year Fellowship student at IIM Raipur. She can be reached at fpm12003.namrata@iimraipur.ac.in

INDUSTRIAL VISIT TO BHILAI STEEL PLANT

On Thursday, the 18th of October, 57 students of PGP 2012-14 batch of Indian Institute of Management Raipur visited Bhilai Steel Plant, the flagship unit of Steel Authority of India Limited. This plant is popularly known for being the sole supplier of the country's longest rail tracks of 260 meters.

 

Bhilai Steel Plant is located about 35 km from  Raipur,the capital city of Chhatisgarh, and is one of the major producers of steel plates, wire rods and other structural parts.

The students had the opportunity of visiting four main sections of the plant namely the rail and structural mill, the blast furnace, the plate mill and the coke ovens. 

The seven different products from the rail and structural mill are used by the Indian Railways and various other companies in the business of construction equipment development. In the Plate Mill, heavy and medium plates are rolled out, using continuously cast slabs as input.  It was a new experience for the students to find the automated process of heating the steel, converting it into plates and then cooling it for the purpose of quenching and stress relieving. The plates produced here are widely used in the defense sector and ship building processes.

After this the group headed to the Blast Furnace shop and had the opportunity to watch the hot sparkling metal (Pig Iron) flowing and getting collected into containers. There are 6 furnaces in the plant.

The students also visited Coke Oven area where coke is produced, which is the input for the blast furnace and the purest form of coal. From there the group also had the opportunity to visit Merchant Mill, Wire Rod Mill, Steel Melting Shops and Sintering Plant.

 

The team was accompanied by officer from BSP, Mr. Panna Lal, who provided various insights regarding production of different type of steel products beginning from the processing of iron ore. The session that came to an end with a vote of thanks turned out to be well coordinated. All in all it was a great learning experience – an opportunity to gain knowledge about the technical and managerial work flow and operations of a large manufacturing firm.

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.

5S in Manufacturing

A work place organization method, developed to, create a comfortable working environment, increase productivity and efficiency and reduce waste. It is typically the first lean method, which also provided foundation on which other lean methods – six sigma, cellular manufacturing, just-in-time production, etc. were introduced.

The 5S methodology which originated in Japan, is based on the notion that the foundation of a good production system is a clean and safe work environment. The 5S – Seiri, Seiton, Seiso, Seiketsu and Shitsuke are translated from Japanese language to the closest English equivalents - Sort, Set in order, Shine, Standardize, and Sustain. Apart from the 5S’s, three other S’s are sometimes included – Safety, Security and Satisfaction. 

SORT – (seiri)

Organizing the work area, by keeping only the essential tools and materials to perform the required task, so as to increase the product quality and productivity. Sorting also helps reclaim valuable floor space. “Red tagging” is one effective visual method used for sorting (Red-tagged items are those not important to perform the required task).

SET IN ORDER – (seiton)

Systematically arranging necessary objects to eliminate waste in production and clerical activities. Placards to designate proper storage locations, outlining work areas are few of the strategies for effective set in order.

SHINE – (seiso)

Maintaining clean and well swept work area, which is safer and mess-free. Potential problems caused by any sources of contamination can be easily identified and rectified, by developing standards and norms for cleanliness.

STANDARDIZE – (seiketsu)

Developing and formulizing standard operating procedures for carrying out tasks and procedures. Orderliness is the core of “standardization”. The most widely used tools to standardize the practices are job cycle charts and visual cues.

SUSTAIN – (shitsuke)

It is the one that keeps the first four S’s going and perhaps is the most difficult S to implement. The prerequisites for sustaining the 5S cycle - Imparting the necessary training, encouraging workers to properly maintain and continuously improve operating procedures and the workplace environment.

5S – Its application at a manufacturing company – Toyota

Toyota was the first company to implement 5S and the main objectives to adopt 5S were to facilitate team work, eliminate wastes that contribute to errors, defects and injuries. The company had implemented 5S by imparting the necessary training to the workforce from the shop floor to the management and rewarded to encourage them, to maintain and continuously improve operating procedures.

5S being one of the important principles of Toyota company, helped it achieve high performance that continues to add value to customers.

Though 5S is a system designed to build a work ethic that is practical, efficient and highly disciplined, it has a few potential short comings like increased use of paints and cleaning supplies, increased waste generation leading to complications in waste handling. However, the advantages of 5S far outweigh the disadvantages. 

The article has been contributed by Sujitha Tikka, who is presently a first year PGP student at IIM Raipur. She has worked with Aarvee Associates architects engineers & Consultant Pvt Ltd for 25 months. Her areas of interest include Supply chain management & logistics.She can be reached at pgp12048.sujitha@iimraipur.ac.in.

References

www.lmsi.ca/5s.htm

http://www.clamshellbeachpress.com/html/book1_sample.pdf

The 14 Principles of the Toyota Way: An Executive Summary of the Culture behind TPS

Impact of FDI in Retail: A 360-Degree View

There is whole lot of mayhem about FDI in retail ever since it knocked the doors of Indian Economy. The mere word “FDI” has haunted the corridors of parliament, big retail outlets, mom n pop store owners, the middle men and even the end consumers. The arguments citing the advantages of FDI in retail mostly revolve around the following:

• Improvement in Retail capability building
• Improvement in management of supply chain
• Push to productivity

With the recent development in this context, it is very much essential to analyse the impact of FDI in retail without any bias. To cut the long story short:

What is FDI in Retail?

Now after all this media show, let’s try to figure out how it will affect entities across the supply chain.

Single Brand Retail: FDI investment till now was 0.03 % (INR 204 Cr) of total FDI investment from April 2000 to September 2011. This relaxation will increase FDI in retail sector through the entrance of new players (Foreign or Domestic), increase or buy outs in stake, M&A amongst existing single brand retailers, Joint ventures with foreign and existing players.

There will be sourcing norm of only 30% from local sources. This will lead to lower procurement locally. So MSME sector will lose but the luxury retail market will witness growth. This will surely lead to outflow of money from India. Growth in luxury retail market and low or no growth in MSME sector will lead to negligible employment generation.
Possibly, there will be changes in existing licensing/ distributor/ franchise arrangements being converted into joint ventures or complete buy out by foreign entrants.

Multi brand Retail: FDI here will lead to increased investments and growth in Indian retail sector. In this case too, new JV’s and M&A will be seen. Tactics of buying stakes or complete buyout will be played. This should provide options for existing Indian retail companies to raise long term capital for expansion.

This financial inflow will lead to development of retail infrastructure and value addition to the existing supply chain. The sector will see investment in setting up supply chain mechanism, transport infrastructure, cold storage, technology etc. This will directly enhance the operational efficiency of the entire supply chain.

Agriculture: The farmers/producers will be benefitted as they will get better price for their produce. Although the buy will be completely based on bulk buy i.e. entire stock based on quality. This means if the company decides to purchase only the quality produce then the not so good produce will find its way to local market (if it exists) or in garbage. Either way the farmer/producer will get paid for the quality produce. This in turn will encourage farmers/producer to improve their existing ways of farming/production. Again this will require investment in technology. 
Companies may go for contract farming and this again will lead to improvement in the method of farming by introduction of better seeds, better fertilizers, new farming equipment etc. provided by the companies.

FDI in retail to benefit the farmers & consumers

Middlemen: Another very visible impact will be the eradication of middlemen from the supply chain. It is usually believed that this would lead to lesser exploitation of the farmers/ producers and at the same time competitive process for the end consumers. But at the same time, the big retail brings in new breed of middlemen- quality controller, standardiser, certification agency, processor, packaging consultants etc. It is these middlemen who would now take their share from the farmers’ profits and the consumers’ savings.

Thus, it is premature to comment on how much the farmers and end consumers will gain out of this elimination of traditional middlemen and introduction of the new middlemen.

Employment: the Indian retail market is estimated to be around $ 400 billion with more than 12 million retailers employing 40 million people. A contrasting picture will be seen as the small retailers, “Kirana shops”, departmental stores etc. will find a tough time to compete or even exist in such scenario. In such scenario, the landless farmers or labours that turned into small time retailers will be worst hit. Government will have to face the question of how to compensate for their loss. This problem will further get intense considering the very low employability of such landless farmers/laborers. 
Another viewpoint is that the damage will not be so extensive as the big retailers will operate in the outskirts or in a very few locations in any city or town and the “Kirana shops” will co-exist in the interiors. In any of the cases, the sheer magnitude of impact to society will be intolerable.

What Retailers Think

Role of State government: As clarified by the central government, it will be on the state governments whether or not to allow multi-brand FDI in the respective state. But India, being a signatory to Bilateral Investment promotion and Protection Agreements (BIPAs), has to provide national treatment to the foreign investors. The fact that such agreements have been signed with more than 70 countries will certainly force the state governments to open up for big retailers.

It will be interesting to see the regulation norms set by the state governments as it will clearly guide the extent of FDI in their respective states. One thing is for sure that State government will be able to get more revenues by keeping FDI in place. But how that increased revenue will justify the lost livelihood of millions of people or what steps will the government take to minimize this loss.

India Speaks about FDI in Retail

Consumers: The consumer in this entire exercise will be delighted with increased number of choices, better quality and decreased prices due to tougher competition in the retail sector. But clearly the winners will be the foreign players who will able to make attractive market share and profits. The tale of FDI in retail sector may lead to monopolistic behaviour of retail players once the small time competitors are eliminated from the market.

References:

1.http://www.ey.com/IN/en/Industries/India-sectors/Retail---Wholesale/Retail_Expected-impact-of-FDI-in-Retail
2.http://www.thehindu.com/opinion/op-ed/article3897906.ece
3.http://www.thehindubusinessline.com/industry-and-conomy/marketing/article3910402.ece

This article has been contributed by Harish Verma, who is presently a second year PGP student of IIM Raipur. He has worked with Essar Power Ltd. for 19 months. His areas of interest include project management, supply chain management & customer service. He can be reached at pgp11015.harish@iimraipur.ac.in.

Effect of Retail Channel Integration through use of IT

Most of the retailers now offer consumers with different channels to buy products. Consumers can buy products through traditional stores, online, mobile, call centres, kiosks etc. However these multiple channels have less integration with each other .For example, consumers dealing with the same organisation will find different pricing, inventories and policies depending on the channel being used. Moreover, the customer service personnel in the physical store may not be knowledgeable about the “in -store payment for online orders”, “in-store returns of online orders”, “online gift cards” etc for products brought through online. Since there is less integration with different channels, a consumer cannot pick the product from physical store which he/she has ordered through ecommerce site. These are the main issues faced by a consumer today due to lack of transparency between different channels within an organization. So it is the need of the retailers to provide consumer with cross-channel convenience.

IT is becoming one of the critical resources in multi channel service operations management as it provide share ability and reusability of information which is  necessary for business process integration. So it is important for the multi channel retailers to use IT effectively in integrating their activities. With retail chain integration, companies can provide advertising and publicity of one channel through another channel. This will encourage customers of one channel to use the others, and increase awareness of the different channels .For example, the physical store can be used as an advertising medium for the Website through brochures, receipts, carrying bags and posters. Likewise, the Website can provide contact information about the physical stores and announce in-store promotions.

 Some of the other major effects of retail channel integration through IT are as follows.

1. Offering customers to choose their preferred channel to buy and complete their purchases. In South Korea, Tesco’s Home Plus has found a way to help time-pressed commuters to shop on the go using their smart phones by building virtual stores on the platform of subway stations. Home Plus displayed images of food items  across the walls of train platforms and every item has a corresponding QR barcode associated with it. People waiting on the platform can scan the QR code of the required item using their mobile and adds products directly to their shopping cart. When the online purchase is done, it would be delivered to user’s home within hours.   

2. Ensuring the consistency of product and pricing information across different retail channels. This can be achieved by integrating product catalogues and ensuring that product descriptions, product categories, prices, and discounts are consistent in the various channels. It ensures the transparent flow of information between processes and reduces confusion arising from information inconsistencies

3. Providing customers to access information available in one channel from another channel. For example, the Website can allow customers to search for products available in the physical store through an integrated database. Likewise, information kiosks at the physical store can help customers search for product information, availability, and the store location of products from the Website. Information on real-time inventory can be made available online so that customers will not make wasted trips to the store when the product is not in stock.

4. Collecting customers online and offline transaction information and making it available across multiple channels. This increases the richness of the information available and the quality of services that can be provided. It allows the retailer to provide many value-added services such as personalized Web pages to users.

5. Providing services for customers to access service support in the channel of their choice. Support can be offered at physical stores for problems related to online purchases, such as allowing customers to return goods ordered online at a physical store and vice versa.

Bibliography

Lih-Bin Oha,Hock-Hai Teob, Vallabh Sambamurthy. The effects of retail channel integration through the use of information technologies on firm performance.

The article has been contributed by Thousif Mohammed, who is presently a first year PGP student at IIM Raipur. He has worked with TCS for 2 years. His areas of interest include Supply chain management & customer service.