Role of Supply Chain Management in Make in India initiative

India is a country blessed by nature in terms of natural resources. It is a source for large number of significant minerals and substances like coal, iron ore, mica, bauxite, natural gas, diamonds, limestone and thorium. India not only has these resources but also tops the ranking list in the world for these mineral reserves. For coal, India has 4^th largest reserves, for bauxite 5^th largest and for manganese ore 7^th largest. Hence as far as raw material strength is concerned, our country has sufficient of it. But still it lags behind a number of countries in utilizing these resources and thus manufacturing.

One of the major reasons being its inability to harness these resources. The factors that make India lag behind other countries include legal rules of licensing, control pricing, currency controlling, labor laws, land rules, environment regulations, poor infrastructure, political barriers and corruption that is prevalent. Although India has a good demographic dividend now but it is expected that population of workers aged 15 to 24 will reduce by 61 million by 2030 in India and other BRIC nations. This again poses a serious threat to manufacturing industry.

INDIA: A Manufacturing Hub?

Make in India, a whimsical step taken by our Prime Minister Mr. Narendra Modi is an initiative taken towards boosting manufacturing in India and increase the contribution of manufacturing to GDP from 15% to 30%. Manufacturing is a very important sector for any country and acts to strengthen the backbone of economy. Encouraging manufacturing in our own country will reduce costs and give employment to our people. Creating more employment opportunities will prevent brain drain as well. Effective supply chain will play a huge role in making this a reality.

Supply chain involves the whole process of converting raw materials into finished product. Each stage requires inputs in various forms and value is being added at each stage and so it is known as Value chain. The value addition incurs costs that result in overall effect on final price. Now if the cost at the very beginning stage i.e. raw material cost is high, the ultimate product costs will automatically rise. The reason for high cost of raw materials is that they are imported from foreign countries instead of being extracted from our own country. Now imagine that not only the raw materials are imported but also the manufactured parts and finished products are imported. Imagine the amount of money that is being flown out of the country for no reason.

Now to “Make in India” there have to be facilities and opportunities equivalent to other developed countries so that the dream of making India a self-sufficient country comes true. In addition to that India also has to overcome the barriers present.

The most important part of excellent manufacturing is well maintained supply chains, but as of now India does not witness a good level of operations management. In India a huge portion of gross domestic product equal to 14% is spent on logistics. 22 % of total sales is caught up in inventories of all the supply chains. Due to inefficient logistic network there is a wastage of 20% in cold supply chains. It is agreed that making development in supply chain in a country like India which is seventh largest according to area, is not that easy but it is not impossible too.

The reason for poor logistics network are numerous and they have been effecting production since ages. There are some geographical disadvantages also. As compared to China, India lags behind by two weeks in shipping line from United States. Indian infrastructure which denotes roads, railways, airports, seaports, information technology (IT) and telecommunications is very deprived as compared with other developed and developing countries. Indian infrastructure is rated 54th among 59 countries in comparison to other developing countries (World Economic Forum, 2000). Only 48% of all villages present in India are connected by roads. Indian railways are rated 25th among 59 nations, World Economic Forum and the quality of airport infrastructure is rated 40th among 59 countries. All these figures tell us that infrastructure of India is not up to the mark of handling efficient supply chains. This results in grave disadvantages in acquiring of necessary materials required especially when companies are planning to get global. Make in India will promote the up-gradation of supply chains in India by strengthening freight network. This is a cycle of improvement that will take place. Due to Make in India campaign freight network will improve and the improvement leads to achieving better results for Make in India. To make this possible government has kept funds for increasing freight capacity by 50%.

Small and medium enterprises hold a very important space in Indian industrial sector as they have been able to perform efficient process of assembling goods in less costs and also maintained the quality standards. There is enough scope of cost reduction due to number of available factors, the only need being to employ them successfully. The reduced cost of logistics will decrease price of goods not only in India but also globally in turn making them more competitive. This will ultimately affect the economy and give us fruitful results being aspired by Make in India. In situations where it is inevitable to import machinery and components there the suppliers should also be asked to import certain minimum amount of components or raw materials from India so that the exchange remains same.

Hence improvements can be done in number of areas to come up with better supply chains which play a major role in Make in India. The focus should be on improving all zones including inventory management, operations and manufacturing. Utilization of latest technologies like radio frequency identification will lead to matching the pace of demand and reducing errors. Information technology and analytics should be utilized vigorously to standardize processes and keep a track of all activities. Internet of Things (IoT) and big data analytics will definitely help in making India’s supply chain competent.

The article is written by Akanksha Rajput. She is a second year PGP student at Indian Institute of Management Raipur

Disruptions in Supply Chain Management – Learning it the Hard Way

In the light of ever diminishing profit margins, over-whelming demand for shortest possible time delivery and minimum inventory holding, presence of a responsive and resilient supply chain is a necessity. External factors like natural disasters, fire accident at supplier end and government restrictions that are not under control of the company also pose a significant risk to smooth functioning of the supply chain. To address these issues let us have a look at some of the companies that had to deal the issues that arise due to supply chain disruption.

In March 2011, Japan was hit by earthquake and tsunami which caused huge loss of lives and also affected the production facilities of major automotive companies namely Toyota, Nissan and Honda. The effect was of such magnitude that it took Toyota over six months to restore production to pre-calamity levels, resulted in a production loss of 140,000 cars and 30% decrease in company profits.

Not all disruptions are man-made. Closer home, labour strike at Maruti Suzuki India’s Manesar plant in June 2012 led to the shutdown of the plant for a month. The resulting effect was a daily loss of INR 900 million and significant drop in sales and market value. This led to long waiting period and cancellation of bookings of its top selling cars. 

Supply chain disruption is an unplanned event that adversely affects a firm’s normal operations. It can be a sudden increase or decrease, in demand or supply that leads to imbalance between the two. 

A convenient solution for such an unplanned situation can be, building Inventory. But holding excess inventory can be a costly affair. Reasons behind it – the inventory carrying costs are incurred continually and also the inventory is meant to be used only in a rare events of disruption. So, the company may end up paying for resources that remain untapped forever! There are also concerns for obsolescence of the products. At the same time, holding excess inventory is reasonable in case of commodity products that are associated with low holding cost and low risk of obsolescence. For example, large amount emergency fuel reserves are maintained by United States as Strategic Petroleum Reserves (SPR). It is one of the largest emergency supplies in the world.

For products showcasing high inventory carrying cost and risk of obsolescence, having limited but multiple suppliers is a better approach. Controlled decentralization, hedges the risk possessed by a centralized or pooled (single) supplier in case of untoward situations. As in case of technology companies like Samsung Electronics  which always aim to have at least two suppliers, even if the second one provides only a fraction of the total volume.This approach helps the company to lower risk of disruption in the supply chain.

While disruptive environments are hard to avoid, whether a company mitigates or fails in that situation depends lot on the company. A classic example for the case is a major fire that broke out in a plant in Philips electronics in March 2000. It was a major supplier of semiconductors to Nokia and Ericsson and the fire destroyed chips meant for millions of phones. Nokia was quick to respond to this by sourcing chips from other plants of Philips and also procured from other suppliers. This multi-supplier strategy along with timeliness, led to little effect of the situation on Nokia’s demand supply capabilities. The other major customer of Philips, Ericsson was confined to single supplier strategy. The single source of chips led to disruption in mobile phone production by Ericsson. As a result, Ericsson ended up losing significant market share to Nokia and a drop in net profits.

The contrasting outcomes to a single event showcases that a responsive and resilient supply chain can alter the fortunes of a company. Breakdowns at a point in the supply chain can have consequences, which are not limited to that region rather, on a global scale.

Thus as a supply chain manager, one should take an informed decision in designing the Supply Chain, by taking into consideration all the factors and risks involved; past industry practices and experiences; and whether it is sustainable for the company and the specific product.

References:

1. WIPRO Consulting Services, “Supply Chain Vulnerability in Times of Disaster”   http://www.wipro.com/documents/resource/ Supply_Chain_Vulnerability_in_Times_of_Disaster.pdf

2. Sanjeev Prashar; Harvinder Singh; AnshuKatiyar, “MarutiSuzuki India Limited: Marketing,” Ivey Publishing, Feb 6, 2013

3. Sunil Chopra and ManMohan S. Sodhi, “Managing Risk to Avoid Supply-Chain Breakdown.” 

http://sloanreview.mit.edu/article/managing-risk-to-avoid-supplychain-breakdown/

4. William Schmidt Ananth Raman, “When Supply-Chain Disruptions Matter.” http://www.hbs.edu/faculty/Publication%20Files/13-006_cff75cd2-952d-493d-89e7-d7043385eb64.pdf

5. https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States)

6. M. Sodhi and S. Lee, “An Analysis of Sources of Risk in the Consumer Electronics Industry,” Journal of the Operational Research Society 58, no. 11 (November 2007): 1430-1439.

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

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.
 

OPERTUNE - 2015 :

OPEP_Operation and supply chain club , IIM Raipur congratulates the winners.

Thanks all for such an overwhelming participation

Big Data Analytics

Big data is collection of large and complex data that cannot be processed by using normal data processing systems. Analytics refers to getting meaningful patterns from an unstructured or semi-structured data. Now Big Data Analytics is processing large data (Unstructured, semi-structured and structured) to discover unknown correlations, hidden data patterns, consumer preferences, market trends and other useful business information.

The results of analysis can be used for improving operational efficiency, better targeting of potential customer, new avenues for revenue generation, gaining competitive edge over rival firms and better customer service. The main aim of big data analytics is to help various firms to take more informed business decisions by enabling analytics professionals and data scientists  to analyze and interpret huge volumes of data  which is untapped by traditional business intelligence programs.

                

Big data encompasses internet clicks information, server logs, Content in Social media,various Social network reports, ,mobile phone call records, customer survey responses and market research data etc. Usually only unstructured and semi-structured data is associated with big data, but consulting companies like Forrester and Gartner consider structured data also as a valid component of big data.

Technologies in Big Data Analytics

Some software tools that are used to analyze big data are based on predictive analytics .There are new class of technologies such as Hadoop and related tools such as MapReduce, YARN, Spark, Pig and NoSQL databases which can process Big data. These technologies form crucial part of an open source software that supports the processing of large and diverse data.

Hadoop

Hadoop is a open source Java-based programming framework that supports the processing of huge data sets in a distributed computing environment. It is part of Apache Software Foundation. It was inspired by Google's MapReduce, a software framework in which any application is divided into numerous small parts. These parts (also called fragments or blocks) can be run on any node (a connection point in a network) in the cluster.

Illustration of Big Data Analytics

         

                                       Big Data Analytics solution by LogicMatter

        Let us now illustrate how big data analytics solution is implemented using Hadoop. LogicMatter is a low cost Big Data Analytics solution provider.  Here traditional (e.g. ODS, EDW) and emerging (Hadoop MapReduce) analytical tools are combined to operate on big data. The data platform is built on the powerful and flexible Amazon Web Services Cloud platform. To capture, process, store and transform data, Hadoop is used with the LogicMatter-designed Analytical Data Store (ADS). File-based storage service of Hadoop is used by platform for flexible and fast data processing .This big data analytics platform enables the continuous delivery of both real-time and historical analytics via the popular Tableau.

The Analytics platform and solutions is built specifically to solve some complex customer problems such as clickstream analytics, video analytics, sales performance analysis, fraud detection and financial analytics.

Data Sources

This platform enables to collect, process, store, and transform both unstructured and structured data exclusively for analytical purposes. It can quickly process various varieties of unstructured data including  text, documents, weblogs, XML files, Excel, audio & video, call logs), clickstream, and event data. It can also simultaneously process structured data from familiar enterprise data sources such as CRM, ERP and SQL Databases.

The data collection process is separated from transformation and analysis. It allows us to easily add data sources of unknown and known kind without impacting the analysis, a huge challenge with present analytics solutions. Transformation of data is delayed till you need to do the analysis wastage and reducing upfront costs.

Data Platform

The AWS data platform consists of two primary components:

 -Hadoop Cluster.

 -LogicMatter-designed ADS (Analytical Data Service).

The flexible and scalable Hadoop technology is used to collect both structured and unstructured data. The data collected is integrated, pre-processed and stored in ADS. The flat file-based storage system of Hadoop allows you to scale quickly as well as handle large amounts of known and unknown data. Hadoop is an integrated and intermediate data source and acts as a feeder to the ADS.The data from Hadoop is mapped and transformed to develop a data model. The model built iteratively and stored in the ADS forms the basis for a powerful analytics. ADS uses traditional data warehouse technology – Cubes, and OLAP. Hence, it supports all the powerful and traditional analytical techniques that you are used to (dashboards ,reports, scorecards etc.).     

Visualization

One of the unique design features of LogicMatter’s Big Data Analytics services is to enable continuous analytics both real-time and historical .As there is an integrated data discovery platform ,the visualization tool is directly connected to either Hadoop or ADS for development the analytics. Ad-hoc queries can be run against Hadoop for exploratory analytics and instant  data access . For the standard, canned reports and dashboards, you connect to the ADS to gain a historical perspective.

The data platform is so flexible that you can easily connect any of your favorite visualization tools (such as Qlikview ,Excel,).

Testimonials Of Big Data Analytics

There are several examples of how bigger, better, faster, stronger applications, analytics, sensors, and networks are creating results with big data today across various industries.

1. The Financial Services Industry

The financial services industry uses big data to make better financial decisions. Banking gaint Morgan Stanley ran into issues doing portfolio analysis on some traditional databases and now uses Hadoop to analyze investments on a larger scale and with better results. Hadoop is also used in the industry for sentiment analysis, financial trades and predictive analytics.

2. The Automotive Industry 

Ford’s modern hybrid Fusion model generates up to 25 GB of data per hour. Data obtained can be used to understand driving behaviors, reduce accidents, understand wear and tear to identify issues that lower maintenance costs, avoid accidents, and even confirm travelling arrangements.

3. Supply Chain And Logistics

Companies like Union Pacific Railroad use thermometers and ultrasound to capture data about their engines and send it for analysis to identify equipment at risk for failure if any. The world’s largest  multi-carrier network for the ocean shipping industry-INTTRA uses it’s OceanMetricsapplication to allow shippers and carriers to measure their own performance. Companies are also using telematics and big data to streamline trucking fleets . GE believes these types new capabilities can contribute $15 trillion to the global GDP by 2030 by using systematic and data-driven analysis.

4. Retail

Walmart is using big data from 10 different websites to feed shoppers transaction data into analytical devices. Sears and Kmart are trying to improve the personalization of marketing campaigns and offers with big data to compete better with Wal-Mart and Target.

Practical Big Data Benefits

Develop Target Markets

By analyzing the various customers purchasing orders, companies can now know better about customers who are buying their products. Companies can accordingly target on those customers.

Customize your website in real time

Thorough big data analytics companies can personalize their websites and portals based on gender, location and nationality of customers and offer them tailored recommendations .The best example for this is Amazon’s use  item-based, collaborative filtering (IBCF).Amazon uses

Features such as “Customers who bought this item also bought” and “frequently bought together” to reach more customers. Amazon could generate more revenue through these methods.

Create new revenue streams

The insights that a company obtain from analyzing market and consumers with Big Data are not just valuable to that company. Firms could sell them as non-personalized trend data to large industry players operating in the same segment and create a whole new revenue stream.

There are many companies like Bloomberg and Analytics Quotient which sell the analyzed information to other companies and generate revenues.

Reducing maintenance costs

Factories estimate that a certain type of equipment is likely to wear out after some years. So, they replace every piece of that technology within that many years. Big Data tools do away with such unpractical and costly practices. Massive amounts of data that they access and use and their unequalled speed can spot failing devices and predict the depreciation time. This results in a much more cost-effective replacement strategy for the utility as faulty devices are tracked a lot faster now.

Offering enterprise-wide insights

Previously when business users needed to analyze large amounts of varied data, they had to ask their IT colleagues for help as they themselves lacked the technical expertise. But by the time they received the requested information, it was no longer useful or even correct. Now With Big Data tools, the technical teams can do the groundwork and then build  algorithms for faster searches. They can develop systems and install interactive and dynamic visualization tools that allow business users to analyze, view and benefit from the crucial data.

Making Smart Cities

To deal with the consequences of their fast expansion, more  number of smart cities are indeed leveraging Big Data tools for the benefit of their citizens. Oslo in Norway, for instance, reduced street lighting energy consumption by 62% with a smart solution. The Memphis Police Department started using predictive software in 2006 and has been able to reduce serious crime by 30 %. Portland city in Oregon, used technology to optimize the timing of its traffic signals and was able to eliminate more CO2 emissions in just six years.

References:

http://searchbusinessanalytics.techtarget.com/definition/big-data-analytics

http://dermatological/big-data-analytics-services-solutions/

http://blog.pivotal.io/pivotal/news-2/20-examples-of-getting-results-with-big-data

http://en.wikipedia.org/wiki/Apache_Hadoop

 The article is written by B.kiran kumar.He is currently a PGP first year student of IIM Raipur.He has 3.9 years of experience at virtusa.

Inventory Management at Amazon

A Brief about E-Commerce Industry:Types of Business Models:

• Buy and Sell: Products are purchased by the company and stacked in warehouses. These products are displayed on the website.
• MarketPlace: Products from multiple vendors are displayed in the website. Company take care of marketing and transactions and shipping, doesn’t hold the inventory.

Industry Analysis and Market Details:

According to a survey by ASSOCHAM E-Commerce is expected to reach USD 56 Billion by 2023.

• More than half of the total 1.2 billion population of India falls under the ‘below 25 years of age’ bracket. 
• 65% of India’s population, representing the working age group of 15 to 64 years, would aid the further growth of e-commerce, driven by their rising disposable income. Notably, discretionary spending in India is expected to jump to 70% by 2025 from 52% in 2005. 

                                               SWOT Analysis Of E-Commerce Industry

Amazon:Introduction

• Sells products such as books, DVDs, Electronics online in more than 60 Countries.
• Uses Amazon-to-Buyer Sale Approach 
• Multi level E-Commerce Company.
• Operates 7 websites that support their business operation globally and offers 20 million items for sale.

     Amazon uses Multi-Tier Inventory model where information flow takes place from tier-1(Amazon Distribution centre) to tier-3(vendors, manufacturers etc) and physical flow takes place from Tier-3 to Tier-1.

How Amazon deals the supply chain with fluctuating demand? 

Amazon.com carries high-demand title in inventory, whereas it purchases low-demand titles from distributor in response to a customer orders.Managing inventory is one of the most important tasks of a retailing company. If there are not enough goods in stock some of the customers might be disappointed. Stocking too many will reduce the profit margins.

 So Amazon Inventory management aimed at following strategies:

• Maintain inventory of millions of items.
• Shipment within one week.
• Have a clear understanding of customer’s delivery needs.
• Coordinate with wholesale suppliers and independent producers to make available to customers both current and the soon to be released books.
• Provide two day delivery on most orders.
• Allow customers to query the status of their purchases and track their own shipments.

Amazon Inventory management- Technology usage

• The Central Amazon Data warehouse is made up of 28 Hewelett Packard servers, with four CPUs per node, running Oracle 9i database software.
• The architecture handles millions of back-end operations and third party seller queries.

Amazon has Strategic Alliances with many vendors for procuring various products.

• Ashford.com( Online retailing of luxury and premium products )
• Drugstore.com (Online retail and information source for health, beauty, wellness, personal care and pharmacy).

Implementation of Inventory Management:

• Amazon aimed at ‘hassle-free operations’, customer satisfaction, time and cost efficiency.
• Amazon managed to reduce the size of its inventories because of efficiently managing the warehouse.
• Careful decision about ‘product’, ‘supplier’ & ‘distribution centre’ i.e. ‘which product to buy’, ‘from where’ & ‘which centre it would send its product to’.
• Huge investment in infrastructure (revamped the layout of its warehouse) and technology (refining its software helped in demand forecasting)
• Aimed at cutting down expenses via outsourcing some of the routine activities.
• Partnered with other companies for shipping the inventory.

When it managed its own inventory, Amazon earned the reputation of providing superior customer service. Despite this it decided to outsource inventory management and adopted following stratagies:

• Amazon decided to outsource its inventory management with a reason to earn more profits.
• Keeping a stock of frequently purchased/ popular items.
• Acted as a trans-shipment centre between distributors to the customer.
• Main Distributors:      Ingram Micro – whole sale distributor, handled books & computer                                             Cell Star – handled cell phone sales
• In August 2001, Amazon entered into an agreement with Ingram Micro Inc (largest wholesale dealer of electronic goods & SCM services) to provide logistics & order fulfilment services for desktops, laptops etc at computer store at Amazon.com. The aim was to maximize operating efficiencies, streamline supply chain logistics and reduce inventory costs.
• In 2001, Amazon decided to include products of competing retailers and some used items on their website.
• Customer could now verify the prices of Amazon’s product vis-à-vis those of other retailers.
• Reduction in the cost of advertisement of there low pricing of products as customers can compare now.
• In 2003, Amazon handled the orders for Borders, Target, Circuit City, Toys “R” Us.
• Amazon only handled the net orders, the companies handled the inventory.
• Services proved to be immensely profitable for Amazon.

The Article is written by B.kiran.He is currently studying PGP 1st year at Indian Institue of Management.

Leading a supply chain turnaround in Whirlpool

         Supply Chain plays an important role in any company’s growth and sales. In fact supply chain has become one big differentiator among the companies. By making a turnaround in supply chain Whirlpool could increase profits and reduce costs. In this article it is critically analysed how the turnaround in supply chain  could bring turnaround in the company by use of five step process for supply chain excellence.

The five step process for supply chain excellence:

1. Right leaders - Hire and groom talent with the unique skills needed to build and run your supply         chain.

2. Select and apply the right technologies, from forecasting systems to carbon footprint                           management.

3. Eliminate crippling cross-functional disconnects such as SKU proliferation and obsolete                       inventory.

4. Collaborate with external suppliers and customers.

5. Implement a disciplined management process to sustain success. 

 Situation of the Company in the year 2000

 1.    Supply chain in the company proved to be sales disablers as the products were not available to             the customer though it was in the inventory.

 2.    More finished goods were there in the inventory tying too much capital in it.

 3.    Only 87% of the product was available to the customers.

 4.    Failure of newly implemented ERP. Previously Whirlpool was shipping 70,000 appliances a               day. But after the implementation of new   ERP, company was able to ship only 2000  products.

These were the problems that the company was facing at that point of time which needed immediate attention to reduce the costs, improve the performance, retain the market share and increase the profits.

Devising the strategy

Whirlpool responsibility of today is to maintain the performance of the supply chain. In 2001, they focused only on North America and the guy responsible for it is very new to the supply chain organisation. Their sales were raised to record level in 2000 with the launch of many innovative products. They were success in many things except only one thing holding them back i.e WHIRLPOOL SUPPLY CHAIN.The fixing the problem of the supply chain is a mandate. At the top level, it’s a very simple formulation “Getting the right product to the right place at the right time - all the time”.They sell those appliances in 100 countries, through retailers big and small and to the construction companies and developers that build new homes.Their Approach to the world class in “Supply chain performance” i.e Supply chain strategy starts with the Last link i.e the customer and proceed backwards.

Understanding Customer Needs:

The top line finding of the study undergone from Boston consulting group is that “Delivery with integrity”. i.e Ability to deliver it fast is important  but as  important as your ability when you said you would. 

“Give a date, Hit a date” is what they are asking for.

Identifying Trade Partner’s Priorities:

Moving upstream, we needed to understand the direct customers better and also study many sub-divisions from contract distributors to single-family-home Builders.Finally they discovered 27 different dimensions, along which our performance was being judged, each varying in importance according to the customer.

Bench-marking the Competition:

Customer’s expectations are dependent upon what others in our industry are doing. They quickly staked out the areas where a relatively small investment would yield supremacy.

Their ultimate plan is “Meet or beat the competition in most areas, at minimum cost.

Building for the Future:

Identifying the probable range of future operating scenarios based on industry, economic and technological trends.

Selling the revolution:

Whirlpool had a careful balance between seeking their guidance and selling your vision i.e between the internal and the external customers. They were involved in consensus-building namely nemawashi (literally means “Root binding”).Here from the project management standpoint, it was important to break out each component of the plan into the stand-alone initiative, Justified by its own business case.From the competitor analysis, they charted their current position against the number one competitor in each dimension in order to understand the gap between them.

Sales and Operational Planning Process:
Whirlpool involves a Systemic approach of plan involving all the departments. CPFR – Collaborative Planning, Forecasting and Replenishment. It is a Web based tool to share forecasts and collaborate on exceptions.Project Management Office was to ensure the completion of projects on time and Performance metrics to keep everything on track.I2 supply chain collaborator ensured that the same data is being used for planning/forecasting purposes by both Whirlpool and its trade partners.

Engaging Talent 
Whirlpool gave Heavy emphasis on people’s project management skills – Disciplined planning & Execution, a model developed by Project Management Institute (PMI).Hiring top notch people in business and information systems side in order to fill out their project management task. Involving industrial experts in Supply chain advisory board for challenging the creativity .

Plan to sell/Build to Order
 The Most important notion is that certain High-Volume SKU should never be out of stock. Running out of them has a disproportionately negative impact on customer’s perceptions. Whirlpool formulating a supply chain strategy that allows them to identify these SKUs across all of their trade partners in all channels and to ensure that the replenishment system of their regional warehouses keeps them in stock. This constitutes the “Plan to sell “Part of the program.This constitutes the “Plan to sell “Part of the program.The small Volume SKU’s should be of pure PULL Basis and the service level is set by the SKU’s.Whirlpool continues to develop new Web-based tools. Recently, they’ve been focused on system-to-system transactions, in which their system talks directly to a customer's system for purposes of transmitting orders, exchanging sales data, and even submitting and paying invoices.

Implications of Supply Chain Turnaround
The supply chain turnaround in whirlpool has made the company reap significant benefits by impacting upon the various financial aspects of the company and resulted in increased shareholder value by reduction in cost and increased efficiency in the supply chain. The following figure shows a schematic diagram of the various implications of the supply chain turnaround that resulted in profit and increased customer value.

                                                                                                                                                              Impact on Sales Revenue

The sales revenue of whirlpool got increased as the company was able to deliver on the time specified by them to the customer. As we have already noted that the customer was not delighted by quicker delivery rather than by delivery at the specified time which delighted the customer. By proper collaboration in the supply chain using i2 supply chain collaborator they were capable of reducing the lead time.Further, the forecast accuracy was also improved through CPFR and the variances in the forecast were reduced. This further prevented the loss of revenue through mark down and stock out situations.

Impact on cost of lost sales
The more collaborative supply chain enabled the supply chain to function smoothly reducing the breakdown of the chain. As the supply chain was effective and functioning at its best the product availability was improved to 96% from the meagre 87% that was in the year of 1998-99. This increased the availability of the product in the market and prevented the loss of sales due to stock outs.Further the implementation of the Made to Stock and Build to Order the company was able to tune its production based on the movement of the stock in the market. The products which are of more demand are made and stocked while the slow moving stock were produced only based on the customer orders. By the implementation of the build to order the company was able to reduce the markdown occurring in the slowing moving stock and reduced the cost of lost sales.The combined effect of the increase in sales revenue and reduction in the cost of lost sales made the company to generate more revenue by serving its customers in a really good manner.

Impact on the Fixed Costs
The company reduced its fixed costs directly by outsourcing the logistics to Penske Logistics a third party logistics company. By doing so their working capital locked up in the form of assets like trucks, warehouse, etc. has been reduced and were ready for investment in other areas. Also the third party logistics provider gave the company knowledge in terms of tracking the package and delivering it economically and efficiently to the customers. Further the company was able to reduce the inventory cost y investing more on supply chain technologies which fetched quicker returns and were very much helpful compared to other physical assets.The improved technological linkages in the chain and reduced physical assets lead to the saving of fixed costs.

Impact on Variable Costs
The company reduced the variable costs by reducing the shipping, expediting and purchasing costs. The company also reduced the transportation and warehousing costs by responding to the customers in an efficient and effective manner. By outsourcing their logistics and warehousing and by accurately forecasting the demand through CPFR and sales and operations planning the company was in a position to reduce its variance in the demand forecast thereby reducing the variable costs involved. Carrying inventory cost was also reduced by focussing more on efficient transhipment and reduced lead times. Thereby reducing the goods to get accommodated in warehoused leading to increased costs.The combined effect of reduction of costs both fixed and variable lead to a lot of cost savings t the company. Whirlpool saved around $100 million in the supply chain turnaround process.

Impact on Assets/Investments
The overall effect of outsourcing and improving the production cycles etc. resulted in freeing a lot of working capital that was locked up as inventories, logistics assets and warehouses. Whirlpool after the implementation of newer systems was in a position to reduce the inventory turnover cycles which increased the working capital available for the firm to invest. Further the outsourcing of the logistics resulted in the reduction in logistics asset cost. On the whole the capital locked up in the form of assets was freed up and was ready for investments.

Impact on Economic profit and Shareholder Value
As the supply chain turnaround had a direct implication on reduction of costs and increased sales revenue. The increase in sales revenue was also due to the prevention of loss of sales in due to unavailability of the product and due reduction in the possibility of markdowns. Thus increased sales and decreased costs resulted in increased profits which in turn resulted in increased shareholder value. Thus Whirlpool was able to turnaround the organisation by making its supply chain more efficient through proper collaboration between its suppliers.

Results of the Supply chain turnaround:
The key results of the supply chain turnaround in Whirlpool were as follows,
• Product availability at Whirlpool increased in the range of 88 to 95 per cent
• Inventories were reduced by 15 to 20 per cent (Saved $100 million)
• Lead times became as low as five days.
• Forecasting errors were reduced by 50%
• Warehouse and transportation costs saving rose up to 5%
• Improved quality of goods delivery and integrity (Saved $100 million)
• Improved relations with suppliers
• Increase in customer service levels
• No. 1 in Fortune Magazine’s 2011 World’s Most Admired Companies

Key lessons learnt from Whirlpool’s Supply Chain turnaround

• Start with customer and work backward – Most of the firms have only the supplier side under control but it is more necessary  to keep the demand side also under control for an effective supply chain. So while beginning to integrate the supply chain the integration should always begin from the customer side proceed backeards.

• Implementation of technology is the last step in supply chain transformation- Many firms consider the investment in  technology as the solution for all the problems they face. But that is not the case technology can only be a back bone to support  the flow of information. In order to eliminate the problems the company should get its processes right and then uses the  technology to support its processes leading to the development of a flexible operating system. 

• Chief Information Officer and Chief Procurement Officer must be on the same page about major technology issues- This is  necessary because until the processes are not clearly understood by the CIO he will not be in a position to provide the CPO with the right information system that can integrate and support all the processes in the system.

• Develop clear, written goals and obtain up-front buy-in from all other major internal players – So that all the stakeholders involved knows exactly what the organization is moving towards and can help n flawless execution of the activities.

• Involve suppliers early in network design – Start with customer and work backward

• Implementation of technology is the last step in supply chain transformation

• Chief Information Officer and Chief Procurement Officer must be on the same page about major technology issues.

• Develop clear, written goals and obtain up-front buy-in from all other major internal players.

• Involve suppliers early in network design - So that their views are also considered and the need for modifications in the middle  of the implementation di not arise from the suppliers end. 

References

• “Leading a supply chain turnaround”, an HBR article by Reuben C Slone

• “On-demand Supply Management: World Class Strategies, Practices, and Technology” By                   Douglas A. Smock, Robert A.  Rudzki, Stephen C. Rogers

•  http://www.icmrindia.org/casestudies/catalogue/Operations/Operations%20at%20Whirlpool-               Operations%20Management %20Case%20Study.htm

•  http://www.information-management.com/issues/20030701/7013-1.html

•  www.wikipedia.com

•  www.scribd.com

• “Operations a Whirlpool”- Poornima Pillai, ICMR Hyderabad, 2004

• “Leading supply Chain Turnaround’- Howard Business Case

• “CPFR at Whirlpool Corporation: Two heads and an exception engine” – N Sagar

This article is written by Vanamamalai R. Vana holds a B.E in Mechanical Engineering. His interests lie in reading and drama.Vana also enjoys playing Volleyball. Reach Vana at pgp13058.vanamamalai@iimraipur.ac.in