A Summer Internship Project

STUDY ON OPPORTUNITIES AND CHALLENGES IN

SUSTAINABLE SUPPLY CHAIN

SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY

IN THE PARTIAL FULFILLMENTS OF

MASTER’S IN BUSINESS ADMINISTRATION (MBA)

(Operations and Supply Chain Management)

BY
Pratiksha Bhagwan Mulay

Under the guidance of

Dr. Sunil Dhanawade

DR. D.Y PATIL CENTRE FOR

MANAGEMENT & RESEARCH
CHIKHALI
2020-2022
 DECLARATION
I hereby declare for this Project entitled Study on Opportunities and Challenges in
Sustainable Supply Chain "submitted by me to the Savitribai Phule Pune University for
the award of for Degree of Master of Business Administration is my original work

I further declare that to the best of my knowledge and belief, this Project Report has not
been submitted earlier to this or any other university for the award of this or any other
degree

ii
 ACKNOWLEDGEMENT
In pursuing and completion of my MBA and other commitments, I undertook the task of
completing my project on “Study on Opportunities and Challenges in Sustainable
Supply Chain”. I would like to thank and convey my gratitude to the employees of
Wadhokar Group of Companies who allowed me to conduct my project and gave me
their whole-hearted support.

I am fortunate in having sought and secured valuable guidance, continuous

encouragement, and strong support at every stage of my guide and supervisor
Dr. Sunil Dhanawade and am deeply grateful to him.

Finally, I also acknowledge with deep gratitude, the immense support I received from my
family members who have always encouraged me and have been a source of inspiration
and help in continuing my effort.

Last but not the least my special thanks to go to all those who have given all the
secretarial support despite all other commitments.

_____________

iv
 TABLE OF CONTENT

CHAPTER NO. PARTICULARS PAGE NO

Introduction 1
1.
1.1 Executive Summary 13

2. Company profile 14

3, Literature Review 19

4. Research Methodology 55

5. Data Analysis & Interpretation 60

Findings, Suggestions and

6. 71
Conclusion

v
 CHAPTER 1

INTRODUCTION

Introduction to the topic

A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into intermediate
and finished products, and the distribution of these finished products to customers.
Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully vertically integrated
firms, where the entire material flow is owned by a single firm and those where each
channel member operates independently. Therefore, coordination between the various
players in the chain is key in its effective management. Cooper and Ellram (1990)
compare supply chain management to a well-balanced and well-practiced relay team.
Such a team is more competitive when each player knows how to be positioned for the
hand-off. The relationships are the strongest between players who directly pass the baton
(stick), but the entire team needs to make a coordinated effort to win the race.

Below is an example of a very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step, and
then transported to distribution centers, and ultimately, customers. Realistic supply chains
have multiple end products with shared components, facilities, and capacities. The flow
of materials is not always along an arborescent network, various modes of transportation
may be considered, and the bill of materials for the end items may be both deep and
large.

To simplify the concept, supply chain management can be defined as a loop: it starts with
the customer and ends with the customer. All materials, finished products, information,
and even all transactions flow through the loop. However, supply chain management can

1
be a very difficult task because in the reality, the supply chain is a complex and dynamic
network of facilities and organizations with different, conflicting objectives.

Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to firm.
Unlike commercial manufacturing supplies, services such as clinical supplies planning
are very dynamic and can often have last minute changes. Availability of patient kit when
patient arrives at investigator site is very important for clinical trial success. This results
in overproduction of drug products to take care of last-minute change in demand. R&D
manufacturing is very expensive, and overproduction of patient kits adds significant cost
to the total cost of clinical trials. An integrated supply chain can reduce the
overproduction of drug products by efficient demand management, planning, and
inventory management.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have
their own objectives, and these are often conflicting. Marketing's objective of high
customer service and maximum sales dollars conflict with manufacturing and distribution
goals

Many manufacturing operations are designed to maximize throughput and lower costs
with little consideration for the impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little information beyond historical
buying patterns. The result of these factors is that there is not a single, integrated plan for
the organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply
chain management is a strategy through which such integration can be achieved.

Supply chain management (SCM) is the term used to describe the management of the
flow of materials, information, and funds across the entire supply chain, from suppliers to
component producers to final assemblers to distribution (warehouses and retailers), and
ultimately to the consumer. In fact, it often includes after-sales service and returns or
recycling. Below figure is a schematic of a supply chain. In contrast to multi echelon

2
inventory management, which coordinates inventories at multiple locations, SCM
typically involves coordination of information and materials among multiple firms.
Supply chain management has generated much interest in recent years for several
reasons. Many managers now realize that actions taken by one member of the chain can
influence the profitability of all others in the chain. Firms are increasingly thinking in
terms of competing as part of a supply chain against other supply chains, rather than as a
single firm against other individual firms.

Also, as firms successfully streamline their own operations, the next opportunity for
improvement is through better coordination with their suppliers and customers. The costs
of poor coordination can be extremely high. In the Italian pasta industry, consumer
demand is quite steady throughout the year. However, because of trade promotions,
volume discounts, long lead times, full-truckload discounts, and end-of-quarter sales
incentives the orders seen at the manufacturers are highly variable. In fact, the variability
increases in moving up the supply chain from consumer to grocery store to distribution
center to central warehouse to factory, a phenomenon that is often called the bullwhip
effect. The bullwhip effect has been experienced by many students playing the “Beer
Distribution Game.” The costs of this variability are high -- inefficient use of production
and warehouse resources, high transportation costs, and high inventory costs, to name a
few. Acer America, Inc. sacrificed $20 million in profits by paying $10 million for air
freight to keep up with surging demand, and then paying $10 million more later when
that inventory became obsolete. It seems that integration, long the dream of management
gurus, has finally been sinking into the minds of western managers. Some would argue
that managers have long been interested in integration, but the lack of information
technology made it impossible to implement a more “systems-oriented” approach.
Clearly industrial dynamics researchers dating back to the 1950’s they have maintained
that supply chains should be viewed as an integrated system. With the recent explosion of
inexpensive information technology, it seems only natural that business would become
more supply chain focused. However, while technology is clearly an enabler of
integration, it alone can not explain the radical organizational changes in both individual
firms and whole industries. Changes in both technology and management theory set the
stage for integrated supply chain management. One reason for the change in management

3
theory is the power shift from manufacturers to retailers. Wal-Mart, for instance, has
forced many manufacturers to improve their management of inventories, and even to
manage inventories of their products at Wal-Mart. While integration, information
technology and retail power may be key catalysts in the surge of interest surrounding
supply chains, e-Business is fueling even stronger excitement. E-Business facilitates the
virtual supply chain, and as companies manage these virtual networks, the importance of
integration is magnified.

Firms like Amazon.com are superb at managing the flow of information and funds, via
the Internet and electronic funds transfer. Now, the challenge is to efficiently manage the
flow of products. Some would argue that the language and metaphors are wrong.
“Chains” evoke images of linear, unchanging, and powerless. “Supply” feels pushy and
reeks of mass production rather than mass customization. Better names, like “demand
networks” or “customer driven webs” have been proposed by many a potential book
author hoping to invent a new trend. Yet, for now, the name “supply chain” seems to
have stuck. And under any name, the future of supply chain management appears bright.

A Schematic of a Supply Chain

4
Key Components of Supply Chain Management:

Supply chain management is an enormous topic covering multiple disciplines and

employing many quantitative and qualitative tools. Within the last few years, several
textbooks on supply chain have arrived on the market providing both managerial
overviews and detailed technical treatments. To help order our discussion, we have
divided supply chain management into twelve areas. It is identified these twelve areas
from their own experience teaching and researching supply chain management, from
analysis of syllabi and research papers on supply chain, and from our discussions with
managers. Each area represents a supply chain issue facing the firm. For any problem or
issue, managers may apply analysis or decision support tools. For each of the twelve
areas, we provide a brief description of the basic content and refer to a few research
papers that apply. They also mention likely Operations Research based tools that may aid
analysis and decision support.

The twelve categories we define are:

• Location

• Transportation and logistics

• Inventory and forecasting

• Marketing and channel restructuring

• Sourcing and supplier management

• Information and electronic mediated environments

• Product design and new product introduction

• Service and after sales support

• Reverse logistics and green issues

• Outsourcing and strategic alliances

5
 • Metrics and incentives global issues.

Location pertains to both qualitative and quantitative aspects of facility location

decisions. This includes models of facility location, geographic information systems
(GIS), country differences, taxes and duties, transportation costs associated with certain
locations, and government incentives. Exchange rate issues fall in this category, as do
economies and diseconomies of scale and scope. Decisions at this level set the physical
structure of the supply chain and therefore establish constraints for more tactical
decisions. Binary integer programming models play a role here, as do simple spreadsheet
models and qualitative analyses. There are many advanced texts specially dedicated to
the modeling aspects of location and most books on logistics also cover the subject. It is
present a substantial treatment of GIS while issues of taxes, duties, exchange rates, and
other global location issues. It is examining several software products that provide
optimization tools for solving industrial location problems.

The transportation and logistics category encompasses all issues related to the flow of
goods through the supply chain, including transportation, warehousing, and material
handling. This category includes many of the current trends in transportation
management including vehicle routing, dynamic fleet management with global
positioning systems, and merge-in-transit. Also included are topics in warehousing and
distribution such as cross docking and materials handling technologies for sorting,
storing, and retrieving products. Because of globalization and the spread of outsourced
logistics, this category has received much attention in recent years. However, we will
define a separate category to examine issues specifically related to outsourcing and
logistics alliances. Both deterministic (such as linear programming and the traveling
salesman problem) and stochastic optimization models (stochastic routing and
transportation models with queuing) often are used here, as are spreadsheet models and
qualitative analysis. Recent management literature has examined the changes within the
logistics functions of many firms as the result of functional integration.

Inventory and forecasting include traditional inventory and forecasting models.

Inventory costs are some of the easiest to identify and reduce when attacking supply

6
chain problems. Simple stochastic inventory models can identify the potential cost
savings from, for example, sharing information with supply chain partners, but more
complex models are required to coordinate multiple locations. A few years ago, multi
echelon inventory theory captured most of the research in this area that would apply to
supply chains. However, in nearly every case, multi echelon inventory models assume a
single decision-maker. Supply chains, unfortunately, confront the problem of multiple
firms, each with its own decision- maker and objectives. Of course, there are many full
texts on the subject such as. They perform one of the earliest studies in serial systems
with probabilistic demand. They introduce the concept of an imputed penalty cost,
wherein a shortage at a higher echelon generates an additional cost. This cost enables us
to decompose the multi echelon system into a series of stages so that, assuming
centralized control and the availability of global information, the ordering policies can be
optimized. Both propose performance measurement schemes for individual managers that
allow for decentralized control (so that each manager makes decisions independently),
and in certain instances, local information only. The result is a solution that achieves the
same optimal solution as if we assumed centralized control and global information.

Marketing and channel restructuring includes fundamental thinking on supply chain

structure and covers the interface with marketing that emerges from having to deal with
downstream customers. While the inventory category addresses the quantitative side of
these relationships, this category covers relationship management, negotiations, and even
the legal dimension. Most importantly, it examines the role of channel management and
supply chain structure considering the well-studied phenomena of the bullwhip effect that
was noted in the introduction. The bullwhip effect has received enormous attention in the
research literature. Many authors have noted that central warehouses are designed to
buffer the factory from variability in retail orders. The inventory held in these warehouses
should allow factories to smooth production while meeting variable customer demand.
However, empirical data suggests that exactly the opposite happens. In other words, the
bullwhip effect is real. Typically causes include those noted in the introduction, as well as
the fact that retailers and distributors often over-react to shortages by ordering more than
they need. It is show how four rational factors help to create the bullwhip effect: demand
signal processing (if demand increases, firms order more in anticipation of further

7
increases, thereby communicating an artificially high level of demand); the rationing
game (there is, or might be, a shortage so a firm orders more than the actual forecast in
the hope of receiving a larger share of the items in short supply); order batching (fixed
costs at one location lead to batching of orders); and manufacturer price variations (which
encourage bulk orders). The latter two factors generate large orders that are followed by
small orders, which imply increased variability at upstream locations. Some recent
innovations, such as increased communication about consumer demand, via electronic
data interchange (EDI) and the Internet, and everyday low pricing (EDLP) (to eliminate
forward buying of bulk orders), can mitigate the bullwhip effect. In fact, the number of
firms ordering, and receiving orders, via EDI and the Internet is exploding. The
information available to supply chain partners, and the speed with which it is available,
has the potential to radically reduce inventories and increase customer service. Other
initiatives can also mitigate the bullwhip effect. For example, changes in pricing and
trade promotions and channel initiatives, such as vendor managed inventory (VMI),
coordinated forecasting and replenishment (CFAR), and continuous replenishment, can
significantly reduce demand variance.

Vendor Managed Inventory is one of the most widely discussed partnering initiatives for
improving multi-firm supply chain efficiency. Popularized in the late 1980s by Wal-Mart
and Procter & Gamble, VMI became one of the key programs in the grocery industry’s
pursuit of “efficient consumer response” and the garment industry’s “quick response.”
Successful VMI initiatives have been trumpeted by other companies in the United States,
including Campbell Soup and Johnson & Johnson, and by European firms like Barilla
(the pasta manufacturer). In a VMI partnership, the supplier—usually the manufacturer
but sometimes a reseller or distributor—makes the main inventory replenishment
decisions for the consuming organization. This means the supplier monitors the buyer’s
inventory levels (physically or via electronic messaging) and makes periodic resupply
decisions regarding order quantities, shipping, and timing. Transactions customarily
initiated by the buyer (like purchase orders) are initiated by the supplier instead. Indeed,
the purchase order acknowledgment from the supplier may be the first indication that a
transaction is taking place; an advance shipping notice informs the buyer of materials in
transit. Thus, the manufacturer is responsible for both its own inventory and the inventory

8
stored at is customers’ distribution centers. Because many of these initiatives involve
channel partnerships and distribution agreements, this category also contains important
information on pricing, along with anti-trust and other legal issues. These innovations
require inter firm, and often intra firm, cooperation and coordination that can be difficult
to achieve.

While marketing focuses downstream in the supply chain, sourcing and supplier
management looks upstream to suppliers. Make/buy decisions, fall into this category, as
does global sourcing (Little (1995) and Pyke (1994)). The location category addresses the
location of a firm’ s own facilities, while this category pertains to the location of the
firm’s suppliers. Supplier relationship management falls into this category as well. Some
firms are putting part specifications on the web so that dozens of suppliers can bid on
jobs. GE, for instance, has developed a trading process network that allows many more
suppliers to bid than was possible before. The automotive assemblers have developed a
similar capability; and independent Internet firms, such as Digital Market, are providing
services focused on certain product categories. Other firms are moving in the opposite
direction by reducing the number of suppliers, in some cases to a sole source.
Determining the number of suppliers and the best way to structure supplier relationships
is becoming an important topic in supply chains. Much of the research in this area makes
use of game theory to understand supplier relationships, contracts, and performance
metrics.

The information and electronic mediated environments category address long-standing

applications of information technology to reduce inventory and the rapidly expanding
area of electronic commerce. Often this subject may take a more systems orientation,
examining the role of systems science and information within a supply chain. Such a
discussion naturally focuses attention on integrative ERP software such as SAP, Baan
and Oracle, as well as supply chain offerings such as i2’s Rhythm and Peoplesoft’s Red
Pepper. The many supply chain changes brought by electronic commerce are particularly
interesting to examine, including both the highly publicized retail channel changes (like
Amazon.com) and the more substantial business to business innovations (like the GE
trading process network). It is here that we interface most directly with colleagues in

9
information technology and strategy, which again creates opportunities for cross-
functional integration.

Product design and new product introduction deal with design issues for mass
customization, delayed differentiation, modularity, and other issues for new product
introduction. With the increasing supply chain demands of product variety, there is an
increasing body of research available. One of the most exciting applications of "supply
chain thinking" is the increased use of postponed product differentiation.

Traditionally, products destined for world markets would be customized at the factory to
suit local market tastes. While a customized product is desirable, managing worldwide
inventory is often a nightmare. Using postponement, the product is redesigned so that it
can be customized for local tastes in the distribution channel. The same generic product is
produced at the factory and held throughout the world.

10
For these problems, we find an interface with engineering and development, with clear
implications for product cost and inventory savings. Stochastic inventory models are
often used to identify some of the benefits of these initiatives. Also important are issues
related to product design, managing product variety, and managing new product
introduction and product rollover.

The service and after sales support category address the critical, but often overlooked,
problem of providing service and service parts. Some leading firms, such as Saturn and
Caterpillar, build their reputations on their ability in this area, and this capability

11
generates significant sales. Stochastic inventory models for slow-moving items fall into
this category, and there are many papers on this topic related to inventory management
and forecasting. While industry practice still shows much room for improvement, several
well-known firms have shown how spare parts can be managed more effectively.

Reverse logistics and green issues are emerging dimensions of supply chain
management. This area examines both environmental issue and the reverse logistics
issues of product returns. Because of legislation and consumer pressure, the growing
importance of these issues is evident to most managers. Managers are being compelled to
consider the most efficient and environmentally friendly way to deal with product
recovery, and researchers have begun significant effort in modeling these systems. The
term “product recovery” encompasses the handling of all used and discarded products,
components, and materials. It is note that product recovery management attempts to
recover as much economic value as possible, while reducing the total amount of waste.
They also provide a framework and a set of definitions that can help managers think
about the issues in an organized way. These authors examine the differences among
various product recovery options including repair, refurbishing, remanufacturing,
cannibalization, and recycling. The whole process of manufacturing begins, of course,
with product design. Today, firms are beginning to consider design for the environment
(DFE) and design for disassembly (DFD) in their product development processes.
Unfortunately, AT&T discovered that designing products for reuse can result in more
materials and complexity, thereby violating other environmental goals.

12
 1.1 EXECUTIVE SUMMARY

Sustainable Supply Chain has become a cornerstone to any company that seeks to
achieve sustainable goals. A company's image is no longer related to the old paradigm of
being sustainable in its own activities, but instead is associated with a strong
collaboration between all supply chain stakeholders, towards a sustainable activity. It is
then critical to create new methods and tools to account for the three pillars of
sustainability: economic, environmental, and social, in a multi-stakeholder chain. In this
context, operational research (OR) methods play a key role in supporting sustainable
supply chain activities.

This project aims to review the trends and directions of or methods applications towards
the achievement of sustainable supply chain. A set of 220 papers has been reviewed to
identify the OR methods being employed, the levels of decision considered and how
sustainability practices were treated through OR. We found that optimization models
applied to strategic level decisions are the most preponderant studies. Moreover, it was
verified that sustainability has been mainly tackled by assessing economic and
environmental aspects, leaving behind the social aspects.

Additionally, or-based studies do not yet present a clear definition of sustainability, a fact
that is proven by the number of environmental and social methodologies explored. Based
on the major trends identified in the literature, a research framework is derived, pointing
towards a future research agenda in the area.

13
 CHAPTER 2: COMPANY PROFILE

Wadhokar Group of Companies affirm dedication to customer service at the best, product
conformance to excellent quality standards, attainment of zero defect productivity and
total quality management, endeavor to upgrade technology to meet global challenge.

Adherence to sound efficient practices, maintenance of excellent Manpower relations and

welfare, adherence to the law of the land, commitment to social welfare, practice of
honest and ethical business norms and attainment of technical and commercial success.

In the year 1968 Mr. Dattatraya T. Wadhokar took his first step to success story in a
rented shed at Kalas with a small fly press machine to manufacture sheet metal part. With
an astute sense of business, dedication, and hard work he transformed it into group of 18
industrial units. Today it employees more than 1500 people and has attained sale of
rupees Rs. 4950 million in 2012. Known for its excellent customer service and state-of-
the-art technology in use, it is one of the most trusted names in metal pressing & pipe
assembly. His sons, Mr. Manohar Wadhokar, Mr. Suresh Wadhokar and Mr. Jagdish
Wadhokar joined the business, one after another to further accenture its growth.

The man with a vision, driving force behind the phenomenal growth of Wadhokar Group
of Companies a technocrat par excellence and man of piety, simplicity and
understanding, these words can describe Late Mr. Manohar D. Wadhokar. God always
wishes human beings to complete their mission and return to him, and here was a man
who was in a hurry to finish his mission. The calling came and he left us at a young age.

Till today, group has expanded its operations to plastic moulding components, filter
components, heavy fabrication as well as agriculture sector. On the other hand group has

14
taken social responsibility as its ethical duty and has been arranging blood donation camp
on 1st of every year since last 7 years in the loving memory Late Mr. Manohar
Wadhokar.

CORPORATE POLICY

We, at Wadhokar Group of Companies affirm our dedication to customer service at the
best, product conformance to excellent quality standards, attainment of zero-defect
productivity and total quality management endeavor to upgrade technology to meet
global challenge.

Adherence to sound efficient practices, maintenance of excellent Manpower relations and

welfare, adherence to the law of the land, commitment to social welfare, practice of
honest and ethical business norms and attainment of technical and commercial success.

JOURNEY OF WADHOKAR GROUP

YEAR-1958:

Wadhokar group, as a Company started its journey under the leadership of Shri D. T.
Wadhokar at Kalas, Pune. The company had a humble yet determined beginning with a
single hand operated fly press.

YEAR-1970:

The company established Suresh Press Works at Chinchwad, Pune and manufacturing of
pipe assemblies for brake and fuel line for TATA motors commenced.

YEAR-1984:

S.M. Rolling works was established at Chinchwad, Pune. The office commenced
manufacturing of sheet metal pressing.

YEAR-1990:

15
A plant, exclusively for TATA motors was established at UPSIDC, Lucknow for
manufacturing of pipe assemblies.

YEAR-1994:

Started backward integration by commissioning Ambica Auto Turn Parts for

manufacturing turn parts

YEAR-1996:

Abusaya auto press parts private limited was started at chakan. This plant was established
with high tonnage pressing capacity for manufacturing of sheet metal parts for indica car
project of TATA motors.

YEAR-1999:

Sumit plastic industries were started for the manufactures of long member of TATA
sumo vehicals. This year a new technology welding with the help of robot was
introduced.

YEAR-1999:

Sumit plastic industries were started for the manufactures of long member of TATA
sumo vehicles. This year a new technology welding with the help of robot was
introduced.

YEAR-2012:

New plants in Zahirabad-Andhrapradesh, Supa-Maharshtra, Talwade-Maharshtra and

Dharwad-Karnataka

CORE COMPETENCY

Core Business

• Sheet Metal Pressings, Assemblies and Tube assemblies for Automobile and
Engineering Industry.

16
 • Heavy and Medium Fabrication.

• Body Welded components for Car Plants.

• Skin Panel for White good Industries. Skin Panel for White good Industries.

• Tube Assemblies for Brake, Fuel and Hydraulic lines of Automobiles. Tube
Assemblies for Brake, Fuel and Hydraulic lines of Automobiles.

• Sheet Metal Pressing & Welding assembling for Automobile Engg. Industries.

Core Competence
• Tool design and analysis, manufacturing, maintenance, and reverse Engineering.

Vision

We at Wadhokar Group of companies envision to be the leaders in the present activities

of manufacture of sheet metal press components, sub-assemblies and assemblies, heavy
fabrications, pipe assemblies, injection molded plastic components with global
perspective, attainment of excellence in manufacturing processes with state or art
technologies, establish bench mark in Quality of product, ensure excellent managerial
capabilities ,and expand its activities in virgin areas of technology to meet with the global
demands of technological up gradation in the years to come.

The dictum we believe in and live with is "Our success is customer’s satisfaction"

PRODUCTS & SERVICES

Plastic Parts

• Refrigerator Doors

• Injection Molding Machines

• Plastic Components

• Sheet Metal Components

17
Load Bodies Cabins

• Tata Motors Load Body

• Load Body Assembly Line

• Ton Load Body

• 406 Load Body

Chassis and Auto Components

• Y1 Frame Auto Components

• Long Member Auto Components

• Sumo Grand Auto Components

• C Pillar Auto Components

Other Products

• Expansion Projects Of The Group

• Chassis & Auto Components

• Load Bodies & Cabins

• Earth Moving Components & Heavy Fabrication

18
 CHAPTER 3: LITERATURE REVIEW

A supply chain is a network of facilities and distribution options that performs the
functions of procurement of material, transformation of these materials into intermediate
and finished products, and the distribution of these finished products to customers.
Supply chains exist in both service and Industrial Construction organization, although the
complexity of the chain may vary greatly from industry to industry and firm to firm

Traditionally, marketing, distribution, planning, Industrial Construction, and the

purchasing organization along the supply chain operated independently. These
organizations have their own objectives, and these are often conflicting. Marketing`s
objective of high customer service and maximum sales dollars conflict with Industrial
Construction and distribution goals.

Many Industrial Construction operations are designed to maximize throughput and lower
cost with little consideration for the impact on inventory levels and distribution
capabilities. Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a single,
integrated plan for the organization---there were as many plashes as businesses. Clearly,
there is a need for a mechanism through which these different functions can be integrated
together. Supply chain management is a strategy through which such integration can be
achieved.

Supply chain management is typically viewed to lie between fully vertically integrated
firm, where the entire material flow is owned by single firm and those where each
channel member operates independently. Therefore, coordination between the various
players in the chain is key in its effective management. Copper and EII ram [1993]
compare supply chain management to a well-balanced and well-practiced relay team.
Such a team is more competitive when each player knows how to be positioned for the
hand-off.

19
The relationships are the strongest between players who directly Pass the baton, but the
entire team needs to make a coordinated effort to win the race.

SUPPLY CHAIN DECISIONS

We classify the decisions for supply chain management into two broad categories-
strategic and operational. As the term implies, strategic decisions are made typically over
a longer time horizon. These are closely linked to the corporate strategy (they sometimes
{/it are} the corporate strategy), and guide supply chain policies from a design
perspective. On the other hand, operational decisions are short term, and focus on
activities over a day-to-day basis. The effort in these types of decisions is to manage the
product flow effectively and efficiently in the “strategically” planned supply chain.
There are four major decision areas in supply chain management:
1) Location
2) Production
3) Inventory
4) Transportation.

20
Location Decisions
The geographic placement of production facilities, stocking points is the natural first step
in creating a supply chain. The location of facilities involves a commitment of resources
to a long-term plan. Once the size, number, and location of these are determined, so are
the paths by which the product flows through to the final customer. These decisions are
of great significance to a firm since they represent the basic strategy for accessing
customer markets, and will have a considerable impact on revenue, cost, and level of
service. These decisions should be determined by an optimization routine that considers
production costs, taxes, duties and drawback, tariffs, local content, distribution costs,
production limitations, etc. although location decisions are primarily strategic, they also
have implications on an operational level.

Production Decisions
The strategic decisions include what products to produce, and which plants to produce
them in, allocation of suppliers to plants, plants to DC’s and DC’s to customer markets.

As before, these decisions have a big impact on the revenues, costs and customer service
levels of the firm. These decisions assume of the existence of the facilities but determine
the exact path (s) through which a product flows to and from these facilities. Another
critical issue is the capacity of the Industrial Construction facilities—and this largely
depends on the degree of vertical integration within the firm. Operational decisions focus
on detailed production scheduling. These decisions include the construction of the master
production of Master production schedule, scheduling production on machines, and
equipment maintenance. Other considerations include worked balancing, and quality
control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage
of the supply chain as either raw material, semi-finished or finished goods. They can also
be in- process between locations. Since holding of inventories can cost anywhere
between 20 to 40 percent of their value, their efficient management is critical in supply

21
chain operations. It is strategic in the sense that top management sets goals. However,
most researchers have approached the management of inventory from an operational
perspective. These include deployment strategies (push versus pull), control polices---the
determination of the optimal levels of order quantities and reorder points, and setting
safety levels, at each stocking location. These levels are critical since they are primary
determinants of customer service levels.

Transportation Decisions
The mode choice aspect of these decisions is the more strategic ones. These are closely
linked to the inventory decisions, since the best choice of mode is often found by trading-
off the cost of using the mode of transport with the indirect cost of inventory associated
with that mode. While air shipments may be fast, reliable, and warrant lesser safety
stocks they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but
they necessitate holding relatively large amounts of inventory to buffer against the
inherent uncertainty associated with them. Therefore, customer service levels and
geographic location play vital roles in such decisions. Since transportation is more than
30 percent of the logistics costs, operating efficiently makes good economic sense.

The concept of Supply Chain Management (SCM) involves the application of state-of the-art
IT tools such as Internet, Intra/Extranet, E-commerce, and EDI that greatly help organizations
to simultaneously improve customer service and reduce inventories across the chain. An
SCM system works collaboratively with customers, suppliers, trading partners and third
parties to change the way operations are viewed, performed, and measured. As today's
companies focus on gaining economic and competitive advantage throughout the entire
product life cycle, this can only be best achieved through leveraging of SCM across the entire
enterprise.

Against this background, this program was implemented for the benefits of organizations in
the APO member countries, with a view to helping them significantly improve their
productivity and competitive performance in the emerging millennium through the effect
application of SCM principles and practices. In particular, the program provided a platform
for the participating member countries to understand the difficulties of developing SCM in
APO member countries and to discuss the possible alternatives of treating these difficulties

22
and challenges; and to share their experiences on the practical applications of SCM that have
contributed to increasing customer satisfaction, productivity, and competitiveness. The scope
of the discussions covered, inter alia, conceptual and theoretical issues related to SCM and
logistics strategy, critical elements of world-class supply chain planning, facilitating SCM
through internet infrastructure, and technology for the supply chain of the future, building
customer focused supply chain, organizational issues in implementation, and recent advances
in SCM.

Supply Chain Management

Supply chain management (SCM) is the process of planning, implementing, and controlling
the operations of the supply chain with the purpose to satisfy customer requirements as
efficiently as possible. Supply chain management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from point-of-origin to point-of-
consumption. The term supply chain management was coined by strategy consulting firm
Booz Allen Hamilton in 1982.

A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply chains exist in
both service and Industrial Construction organizations, although the complexity of the chain
may vary greatly from industry to industry and firm to firm.

According to the (CSCMP), a professional association that developed a definition in 2004,

Supply Chain Management "encompasses the planning and management of all activities
involved in sourcing and procurement, conversion, and all logistics management
activities. Importantly, 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."

23
Supply chain event management (abbreviated as SCEM) is a consideration of all possible
occurring events and factors that can cause a disruption in a supply chain. With SCEM
possible scenarios can be created and solutions can be planned.

Some experts distinguish supply chain management and logistics management, while
others consider the terms to be interchangeable. From the point of view of an enterprise,
the scope of supply chain management is usually bounded on the supply side by your
supplier's suppliers and on the customer side by your customer's customers.

SUPPLY CHAIN DECISIONS

We classify the decisions for supply chain management into two broad categories:
strategic and operational. As the term implies, strategic decisions are made typically over
a longer time horizon. These are closely linked to the corporate strategy, and guide supply
chain policies from a design perspective. On the other hand, operational decisions are
short term, and focus on activities over a day-to-day basis. The effort in these types of
decisions is to effectively and efficiently manage the product flow in the "strategically"
planned supply chain.

Shortened product life cycles, increased competition, and heightened expectations of

customers have forced many leading edge companies to move from physical logistic
management towards more advanced supply chain management. Additionally, in recent
years it has become clear that many companies have reduced their Industrial Construction
costs as much as it is practically possible. Therefore, in many cases, the only possible way
to further reduce costs and lead times is with effective supply chain management.

In addition to cost reduction, the supply chain management approach also facilitates
customer service improvements. It enables the management of inventories, transportation
systems and whole distribution networks so that organizations are able meet or even
exceed their customers' expectations.

To simplify the concept, supply chain management can be defined as a loop: it starts with
the customer and ends with the customer. All materials, finished products, information,
and even all transactions flow through the loop. However, supply chain management can

24
be a very difficult task because in the reality, the supply chain is a complex and dynamic
network of facilities and organizations with different, conflicting objectives.

What has then enabled the effective implementation of supply chain management? The
answer is found from the rapid developments in information and communications
technologies. Use of databases, communication systems, and foremost advanced
computer software are crucial for the development of a modern cost-effective supply
chain management.

NEED FOR SCM

1. SCM is a concept or a mechanism to improve the total productivity of enterprises in a

supply chain by optimizing the timing, location and quantity of materials flow from
raw material provider to the consumer of the final products. This concept is especially
useful in the industry where (1) the competition in the market is very high, (2) the
customers are very demanding for example in the well documented Dell Built-To-
Order model where 84% of Dell's revenue is derived from online customers who have
the final say in the final configuration of their personal computers and notebooks, (3)
the product life cycle is very short for example the electronics contract Industrial
Construction industry currently experiences product life cycles of short as three

25
 months from raw materials to final consumption, and (4) stakeholders request for
high returns on investment (ROI). Promising Asian companies should start investing
in good IT infrastructure to improve the productivity in the supply chain.

2. There is a need for good SCM systems nationally and regionally for the APO member
countries. This system should include databases, model bases, visual maps and
friendly user interfaces. The proper use of such a system can help to minimize the
total SCM cost (materials cost, production costs, warehousing costs, inventory costs
and transportation costs). In ROC and Singapore, there are already such systems in
the marketplace and well used by leading enterprises, in electronics and information
industries. The benefits of employing such a model can help enterprises in the highly
competitive electronic and computer industries to simulate their SCM strategies and
determine the optimal SCM strategy under certain cost operating environments.

3. SCM should be linked to the digital economy as demanding and technology savvy
customers around the world increasingly expect goods and materials to be delivered
to their doorstep at "click-speed". In response to these demands, supply chains of
enterprises and industries need to be more real-time and dynamic. Therefore, new
technologies, intelligent software agents, will become an integral part of SCM.
Quantum leaps in productivity and agility in the supply chain can be made possible
by the courageous adoption of these intelligent agent-based decision support systems.
The US experience in the use of these software agents has been very successful as
these agents (software programs) can actively engage with the user in dialogue and
negotiate and coordinate the transfer of real-time information to other users on web-
based platform. Proper interfacing and integration of such agents can help realize the
fruition of a truly global logistics network. An example is the establishment of the
Global Transport based out of the US. The Transport serves to link Industrial
Construction, transportation, and information to create innovative logistical
infrastructure for global commerce.

4. In the past, SCM is predominantly enterprise focused with mutually exclusive set of
activities. Today, progressive firms are readily embracing systems integration through
ERP and other means of electronic connectivity, primarily for cost reduction

26
 purposes. In the future, SCM would have to integrate enterprises, ensure greater
collaboration between supply chain partners, and work towards a synchronized value
collaboration network. Only then can firms talk about chain-wide profit maximization
and economic value add.

5. Some of the main challenges presented by the resource persons include the following:
building a supply chain infrastructure without damaging the environment i.e. how to
have a green supply chain, setting up a reverse logistics program for firms to ensure
ecological balance and waste reduction, managing of demand volatility face by
enterprises when they move to a digital arena and greater dynamic customization,
how to extract better channel coordination between partners in the supply chain, how
to obtain better procurement leverage using real-time information and the Internet,
how to extract greater profitability out of decreasing business margins, and the need
to manage services besides the traditional product-based approach given the blurring
between design and outsourcing of Industrial Construction.

6. Several pertinent concerns were also highlighted by the resource persons: sharing of
risk between partners in the supply chain, the ownership of inventory (vendor
managed of co-managed inventory), the applicability of some good SCM practice in
certain industries (like VMI in the retail sector) to other industries, and information in
the supply chain, the management of demand forecast projection and accuracy, and
the ability of SMEs to invest in much needed IT and related technologies to improve
their supply chain processes

7. There is a need for good SCM systems nationally and regionally for the APO member
countries. This system should include databases, model bases, visual maps and
friendly user interfaces. The proper use of such a system can help to minimize the
total SCM cost (materials cost, production costs, warehousing costs, inventory costs
and transportation costs). In ROC and Singapore, there are already such systems in
the marketplace and well used by leading enterprises, in electronics and information
industries. The benefits of employing such a model can help enterprises in the highly
competitive electronic and computer industries to simulate their SCM strategies and
determine the optimal SCM strategy under certain cost operating environments.

27
8. SCM should be linked to the digital economy as demanding and technology savvy
customers around the world increasingly expect goods and materials to be delivered
to their doorstep at "click-speed". In response to these demands, supply chains of
enterprises and industries need to be more real-time and dynamic. Therefore, new
technologies, intelligent software agents, will become an integral part of SCM.
Quantum leaps in productivity and agility in the supply chain can be made possible
by the courageous adoption of these intelligent agent-based decision support systems.
The US experience in the use of these software agents has been very successful as
these agents (software programs) can actively engage with the user in dialogue and
negotiate and coordinate the transfer of real-time information to other users on web-
based platform. Proper interfacing and integration of such agents can help realise the
fruition of a truly global logistics network. An example is the establishment of the
Global Transpark based out of the US. The Transpark serves to link Industrial
Construction, transportation and information to create innovative logistical
infrastructure for global commerce.

9. In the past, SCM is predominantly enterprise focused with mutually exclusive set of
activities. Today, progressive firms are readily embracing systems integration through
ERP and other means of electronic connectivity, primarily for cost reduction
purposes. In the future, SCM would have to integrate enterprises, ensure greater
collaboration between supply chain partners, and work towards a synchronized value
collaboration network. Only then can firms talk about chain-wide profit maximization
and economic value add.

10. Some of the main challenges presented by the resource persons include the following:
building a supply chain infrastructure without damaging the environment i.e. how to
have a green supply chain, setting up a reverse logistics program for firms to ensure
ecological balance and waste reduction, managing of demand volatility face by
enterprises when they move to a digital arena and greater dynamic customization,
how to extract better channel coordination between partners in the supply chain, how
to obtain better procurement leverage using real-time information and the Internet,
how to extract greater profitability out of decreasing business margins, and the need

28
 to manage services besides the traditional product-based approach given the blurring
between design and outsourcing of Industrial Construction.

11. Several pertinent concerns were also highlighted by the resource persons: sharing of
risk between partners in the supply chain, the ownership of inventory (vendor
managed of co-managed inventory), the applicability of some good SCM practice in
certain industries (like VMI in the retail sector) to other industries, and information in
the supply chain, the management of demand forecast projection and accuracy, and
the ability of SMEs to invest in much needed IT and related technologies to improve
their supply chain processes

OPPORTUNITIES ENABLED BY SUPPLY CHAIN MANAGEMENT

The following strategic and competitive areas can be used to their full advantage if a
supply chain management system is properly implemented.

Fulfillment: Ensuring the right quantity of parts for production or products for sale arrive
at the right time. This is enabled through efficient communication, ensuring that orders are
placed with the appropriate amount of time available to be filled. The supply chain
management system also allows a company to constantly see what is on stock and making
sure that the right quantities are ordered to replace stock.

Logistics: Keeping the cost of transporting materials as low as possible consistent with
safe and reliable delivery. Here the supply chain management system enables a company
to have constant contact with its distribution team, which could consist of trucks, trains, or
any other mode of transportation. The system can allow the company to track where the
required materials are at all times. As well, it may be cost effective to share transportation
costs with a partner company if shipments are not large enough to fill a whole truck and
this again, allows the company to make this decision.

Production: Ensuring production lines function smoothly because high-quality parts are
available when needed. Production can run smoothly because of fulfillment and logistics
being implemented correctly. If the correct quantity is not ordered and delivered at the
requested time, production will be halted, but having an effective supply chain

29
management system in place will ensure that production can always run smoothly without
delays due to ordering and transportation.

Revenue & Profit: Ensuring no sales are lost because shelves are empty. Managing the
supply chain improves a company’s flexibility to respond to unforeseen changes in
demand and supply. Because of this, a company can produce goods at lower prices and
distribute them to consumers quicker than companies without supply chain management
thus increasing the overall profit.

Cost: Keeping the cost of purchased parts and products at acceptable levels. Supply chain
management reduces costs by increasing inventory turnover on the shop floor and in the
warehouse, controlling the quality of goods thus reducing internal and external failure
costs and working with suppliers to produce the most cost-efficient means of Industrial
Construction a product.

Cooperation: Among supply chain partners ensures mutual success. Collaborative

planning, forecasting and replenishment (CPFR) is a longer-term commitment, joint work
on quality, and support by the buyer of the supplier’s managerial, technological, and
capacity development. This relationship allows a company to have access to current,
reliable information, obtain lower inventory levels, cut lead times, enhance product
quality, improve forecasting accuracy and ultimately improve customer service and
overall profits. The suppliers also benefit from the cooperative relationship through
increased buyer input from suggestions on improving the quality and costs and though
shared savings. Consumers can benefit as well through the higher quality goods provided
at a lower cost.

SCM ACTIVITIES

Supply chain management is a cross-functional approach to managing the movement of

raw materials into an organization and the movement of finished goods out of the
organization toward the end-consumer. As corporations strive to focus on core
competencies and become more flexible, they have reduced their ownership of raw
materials sources and distribution channels. These functions are increasingly being

30
outsourced to other corporations that can perform the activities better or more cost
effectively.

The effect has been to increase the number of companies involved in satisfying consumer
demand, while reducing management control of daily logistics operations. Less control
and more supply chain partners led to the creation of supply chain management concepts.
The purpose of supply chain management is to improve trust and collaboration among
supply chain partners, thus improving inventory visibility and improving inventory
velocity.

Strategic

• Strategic network optimization, including the number, location, and size of

warehouses, distribution centers and facilities.

• Strategic partnership with suppliers, distributors, and customers, creating

communication channels for critical information and operational improvements
such as cross docking, direct shipping, and third-party logistics.

• Product design coordination, so that new and existing products can be optimally
integrated into the supply chain, load management

• Information Technology infrastructure, to support supply chain operations.

• Where to make and what to make or buy decisions

• Align Overall Organizational Strategy with supply strategy

Tactical

• Sourcing contracts and other purchasing decisions.

• Production decisions, including contracting, locations, scheduling, and planning

process definition.

• Inventory decisions, including quantity, location, and quality of inventory.

• Transportation strategy, including frequency, routes, and contracting.

31
 • Benchmarking of all operations against competitors and implementation of best
practices throughout the enterprise.

• Milestone Payments

Operational

• Daily production and distribution planning, including all nodes in the supply chain.

• Production scheduling for each Industrial Construction facility in the supply chain
(minute by minute).

• Demand planning and forecasting, coordinating the demand forecast of all

customers and sharing the forecast with all suppliers.

• Sourcing planning, including current inventory and forecast demand, in

collaboration with all suppliers.

• Inbound operations, including transportation from suppliers and receiving

inventory.

• Production operations, including the consumption of materials and flow of finished

goods.

• Outbound operations, including all fulfillment activities and transportation to

customers.

• Order promising, accounting for all constraints in the supply chain, including all
suppliers, Industrial Construction facilities, distribution centers, and other
customers.

• Performance tracking of all activities

32
Product Recovery Options

The analysis of the recovery situation is considerably more complicated than that of
consumables. Normally, in a recovery situation some items cannot be recovered, so the
number of units demanded is not balanced completely by the return of reusable units.
Thus, in addition to recovered units, a firm must also purchase some new units from time
to time. Consequently, even at a single location, there are five decision variables: (1) how
often to review the stock status, (2) when to recover returned units, (3) how many to
recover at a time, (4) when to order new units, and (5) how many to order. When there
are multiple locations, the firm must decide how many good units to deploy to a central
warehouse, and how many to deploy to each retailer or field stocking location. With
consumable items the lead time to the retailers is a transportation time from the
warehouse plus a random component, depending on whether the warehouse has stock.
With recoverable items, the lead time is the transportation time plus the time to recovery,
if the warehouse does not have stock. So in some cases the two systems can be treated in
almost the same way. However, if the recovery facility has limited capacity, or if the
number of items in the system is small, the systems will differ significantly. For example,
if many items have failed and are now in recovery, they cannot be in the field generating
failures. Therefore, the demand rate at the warehouse will decline. In a consumable
system, it is usually assumed that the demand rate does not depend on how many items

33
have been consumed. Most of the research in this area relevant to this article concerns
products and packaging after manufacturing has been completed. For example, a large U.
S. chemical company gained significant market share in water treatment chemicals by
delivering its products in reusable containers. The customers (hospitals and other large
institutions, for example) need never touch the chemicals or deal with the disposal of
used containers. This problem has been addressed by, among others. Some products that
are not reused as is can be disassembled so that some of the parts can be used in
remanufactured products. Report on a model developed in connection with a
manufacturer of reprographic equipment. There is a single location with two types of
inventory: serviceable and repairable. Demands for serviceable units and returns of
repairable units occur probabilistically, specifically, according to independent Poisson
processes with rates, respectively (where f is a fraction). In addition, repairs are done on a
continuous, first come-first served basis (for example, at a local machine shop).

Outsourcing and strategic alliances examines the supply chain impact of outsourcing
logistics services. With the rapid growth in third party logistics providers, there is a large
and expanding group of technologies and services to be examined. These include
fascinating initiatives such as supplier hubs managed by third parties. The rushes to
create strategic relationships with logistics providers and the many well-published
failures have raised questions about the future of such relationships. In any case,
outsourcing continues to raise many interesting issues.

Metrics and incentives examine measurement and other organizational and economic
issues. This category includes both measurement within the supply chain and industry
benchmarking. Because metrics are fundamental to business management, there are many
reading materials outside of the supply chain literature, including accounting texts for
instance. Several recent articles concentrate on the link between performance
measurement and supply chain improvement. Finally, global issues examine how all of
the above categories are affected when companies operate in multiple countries. This
category goes beyond country specific issues, to encompass issues related to cross
boarder distribution and sourcing. For example, currency exchange rates, duties & taxes,
freight forwarding, customs issues, government regulation, and country comparisons are

34
all included. Note that the location category, when applied in a global context, also
addresses some of these issues.

Studies on supply chain management suggest that the scope of business processes being
coordinated across supply chains is broad. It is determined the scope of processes that are
being integrated across organizational borders and indicated that many companies that
practice supply chain management are attempting to integrate logistics, marketing, and
operations-oriented processes across supply chains. They extended the scope of SCM
beyond material management, partnership, information technology to the Total Quality
Management areas like management commitment, organizational structure, training, and
behavioral issues. As firms' survival lies on integration, a good understanding of the
integration process is a key aspect in SCM. It is that studied how to integrate the supply
chain management business process. It is concluded that the level of investments to
supply chain partners, the degree of dependence between supply chain partners, and the
level of product salability of manufacturer would enhance commitment and,
consequently, the integration of the SCM business process. We provided a theoretical
framework and proposed the theoretical as well as empirical reasons for enhancing the
underlying logic of process integration in supply chain management to capture pooled
and reciprocal interdependencies. It is discussed that basic hypothesis “the more
integration (wider the scope) – the better the management of the chain” is not always true
and proved that it depends very much on the “environment” of the supply chain and the
power relations between the participants in the supply chain. They discussed strategy
formulation, identified decision-making areas for improving material flow, and finally
performance evaluation in order to determine how well the supply chain initiative has
been implemented. Authors proposed a set of management techniques and tools to
analyze successful SCM strategies. As traditional supply chain too often, is a sequence of
weakly connected activities both within and outside the organization and leads to many
misalignments. It is presented a coordination framework, to align the inventory decisions
in decentralized supply chains. The framework was based on multi-agent technology,
coordination theory, and optimization technology.

Three operational successes:

35
Cost control and operational efficiency:

Cost and profitability drivers are of the utmost importance in First source solution. With
wafer-thin margins of two to three percent, managing costs is an ongoing challenge for
them. Supply chain can help their managers in sales, marketing, customer support, supply
chain planning and financials understand and respond to key issues, such as:

• Correctly analyzing barriers to market-entry, which vary widely with each

product

• Responding to competition within a well-defined supply tier structure

• Dealing with the high threat of product substitutes

• Continually driving product innovation

• Managing product lifecycles to maximize returns

Managing costs is one of the most critical elements of profitability in business process
outsourcing industry. However, a closer look at the elements of supply chain
management might reveal that procurement and information management most
significantly impact costs. For example:

• Breakdowns in the procurement and information management process can have a

costly ripple effect throughout the supply chain

• Procurement and outsourcing management processes are a high contributor to the

product cost structure, opening opportunities for cost management

• IT companies have a high degree of control over managing suppliers

Three operational failures:

They look to reduce costs, shorten cycle time, improve shareholder value, decrease
inventory, and focus on core competencies, gain information technology, increase
expertise and more. Likewise transport, warehouse, forwarder and other logistics service

36
providers want to provide outsource services. They want to improve profits, transition
from being a commodity service provider, gain volumes and throughput by leveraging
existing core logistics service, increase revenues and more. This creates a mutual need
between the two parties. Yet despite this common interest, half of the outsourcing
relationships end unsatisfactorily within three years. Half are not able to go beyond a
buyer-seller relationship.

The responsibility for the failure often resides with both parties. Reasons for the failures
run the gamut and include:

• Poor project design

• Lack of metrics or key performance indicators

• Use of improper metrics

• Not fulfilling expectations of either or both parties

• No clear lines of responsibility and accountability

• Inability to evolve the relationship from short term to long term and from static to
dynamic

Some reasons for failure reflect symptoms, not causes. Failures are not unique to
outsourcing; but outsourcing is unique. Outsourcing goes beyond transport or warehouse
agreements and service. Supply chain management is one of largest costs and has
significant service impact to First Source Solution. Some contract logistics projects are
critical to a company’s supply chain and operating success. Therefore outsourcing should
be designed not to fail, especially with supply chain management. The impact can be
significant to the company doing the outsourcing.

Much is discussed about metrics and service level agreements in defining the outsourcing
relationship. These should be after-the-fact and matter-of-fact results of the project
definition and design. Whether the two parties are trying to develop the contract logistics

37
relationship or are striving to make an existing outsourced program succeed, there are
three fundamental issues that must be addressed.

• Expectations are not reasonable. The litmus test of reasonableness should be used to
identify risks for each party. Expectations must be known as to where they are and
why. They must be tangible. The timing of occurrence and impact should reflect
transition, ramp up and learning curve.

• Potential conflict may exist initially between buyer and seller. This means
incompatibility with goal congruence. The basic foundation is between buyer and
seller. Moving to mutual beneficial development and direction can be hindered—or
not—with this basic issue.

• Supply chain management is a process that crosses the company. This can put
outsourcing and contract logistics provider in conflict with the traditional
organization silos.

Outsourcing of supply chain management should be designed and developed to succeed.

Both parties must take the dialogue deeper. Whether it develops into a partnership
depends on mutuality. The three issues frame and drive the relationship, its direction,
purpose and its continuity. It should be based on a prudent, rational, open exchange
between the firm wanting to outsource and the firm wanting to handle the outsourcing.
There should be no rush to judgment and have no artificial deadlines for completion. All
this increases the chances for success. Supply chain in outsourcing business is too
important to fail.

Weakness in supply chain management:

The supply chain is made up of all the activities that are required to deliver products to
the customer - - from designing product to receiving orders, procuring materials,
marketing, manufacturing, logistics, customer service, receiving payment and so on.
Anyone, anything, anywhere that influences a product’s time-to-market, price, quality,
information exchange, delivery, among other activities is part of the supply chain.

38
There is no doubt about the heavy emphasis on e-Commerce and e-Supply Chain
activities. Large staffs, big information technology investments and other resources have
been deployed to create sophisticated e-supply chains. The scope of these e-supply chains
will include everything from product development, Supply Chain Management,
marketing, sales and accounting activities. Suppliers, regardless of size, should have
received the signal loud and clear...the e- Supply Chain has arrived. Even more intriguing
is the rapid evolution of the digital marketplace which allows buyers and sellers to
transact in a single intelligent, multidimensional marketplace that connects multiple
trading exchanges. This allows buyers to consolidate orders from multiple vendors and
subsequently provide for the effective integration of the final logistical activities. Putting
intelligence into super portals so customers can get their information their way is
essential. Management, across all industries, will need to embrace collaboration with
customers and suppliers in the planning and replenishment process. As customers and
suppliers band together in mutually beneficial partnerships, the need for better Supply
Chain Management processes and systems is very evident and a very high business
priority. For many companies, it has become clear that a supply chain that flows
information and material best can be a significant competitive differentiator. All the way
to the boardroom, improving Supply Chain Management is getting lots of attention
because forward-thinking managements know it is the best strategy to increase market
share, reduce costs, minimize inventories and, of course, improve profits. In many
industries, market share will be won and lost based on supply chain performance. With
the stakes so high, there is a frenzy of activity along the supply chain front. Executives
are assessing how their companies do business, especially in supply chain activities. They
often find dysfunctional sets of policies, processes, systems and measurements. And these
exist at all points in the supply chain, including business partners. The existence of a
“company of silos” becomes apparent and, most importantly, a new clarity of needs and
goals emerges for Supply Chain Management. There is a need to transform from
dysfunctional and un-synchronized decision-making - which results in disintegrated and
very costly supply activities - to a supply chain that performs in such a way that it is one
of the company’s competitive advantages.

39
Information Technology and Information Management:

The advent of the Internet and electronic communication has enabled Firstsource solution
to be more responsive to their customers than ever. Current developments and the
rationale for IT integration by analyzing the problems of enterprise resource planning
(ERP), electronic data interchange (EDI) and presented the solutions of SCM. Authors
provided insights into the adoption of systems and the impacts on organizational
performance. There were no significant performance differences found between ERP
adopters and non-adopters, either at the business process level, or at the overall firm
level. Although it was confirmed that the rich experience of firms with ERPs, tends to
deliver higher overall performance, but no evidence was found of a similar effect on
supply chain performance. On the contrary EDI adopters perceived more operational
benefits, more external pressure and mutual understanding, and fewer technical and
organizational difficulties than non-adopters of EDI. Shore

Customer - Supplier Relationship Management:

Customer satisfaction is absolute for staying abreast in competitive environment that can
be achieved only by quickly responding to customer needs. Efficient consumer response
(ECR) is a supply chain management strategy that attempts to address the inefficiencies
in the supply chain. It is discussed efficient consumer response (ECR) as a supply chain
strategy by analyzing the adoption of ECR strategy in some industries. Furthermore, a
management action plan is presented for future adoption of ECR strategy by similar
business operations in First source solution. Authors recommended flexible supply chain
by involving change in layouts, establishing faster set-ups and by developing partnership
with vendors for quicker response.

The advent of the Internet allows electronic communication with suppliers regarding
matters of stock availability, ordering and delivery without the associated costs of
Electronic Data Interchange. As a result, Firstsource solution can deal with a larger
network of suppliers. They examine the relationship between suppliers and
manufacturers, and the effectiveness of business to business (B2B) e-commerce
implementations. The results indicated that there is a clear link established between

40
effective management of human resources and effective implementation of B2B e-
commerce. They proposed conceptual model including behavioral dimensions of
supplier-dealer relationships and presented hypotheses about how to achieve satisfactory
inter-organizational relationships. It is concluded that long-term relationships between
customer and supplier can lead to higher satisfaction. They provided a framework for
developing supply chain metrics that translates performance into shareholder value. The
framework emphasized on managing the interface between customer relationship
management and supplier relationship management at each link in the supply chain.

Knowledge Management:

A stronger emphasis on knowledge management as part of business strategy may help

supply managers to manage uncertainty better. They proposed a framework of knowledge
management and “e-knowledge networks” in inter-organizational systems to support
organizational collaboration. It is observed that establishing internal knowledge
management systems for organization creates opportunities to minimize knowledge
isolation in functional departments and creates a greater base for tacit learning to be
leveraged. On the other hand external knowledge management systems bring value chain
members closer together and add value to the product (i.e. increased quality, customer
perceptions of brand platforms) throughout the value chain. It is found that only
knowledge management is many times inadequate for managing a supply network in
uncertain environment hence a new approach – called the “intelligence handbook” was
proposed to discover operational intelligence in order to map knowledge in a supply
network with uncertainty. The impact of organizational structure in knowledge transfer
and utilization among the different participating functions in the perspective of systems
theory. Authors then exploit the rational behind an effective process of knowledge
movement in any organization, and the probable factors that influence such movements.

“Supply chain management is the continuous planning, developing, controlling,

informing and monitoring of actions within and between supply chain links so that an
integrated supply process results which meets overall strategic goals.” Supply chains are
not linear; rather, any organization has several supply chains coming into (upstream),

41
going through and going out of (downstream) the organization. Supply chain
management is the management of the whole demand process, starting with the end
customers' requirements - be that external customer (e.g. consumers) or internal
customers (e.g. end users) - and managing the meeting of their requirements right up to,
and in some cases, beyond the supplier of the required goods or services. Few
organizations have fully integrated their supply chains; one example of where supply
chain management has been successfully implemented is in the automotive sector were
Nissan, the car manufacturer, has integrated its upstream supply chains - certainly for its
car production if not for its entire business. The supermarket sector is an excellent
example of where the supply chains close to the final customer have been managed to the
extent that all goods and services required by the organization are demand-driven, with
technology enabling end-customers' requirements to be communicated direct to suppliers.
CIPS encourages organizations to manage their supply chains for both direct spend i.e.
those goods and services required for the business (components for a manufacturing
process for example), as well as indirect spend i.e. those goods and services required to
support the business - professional services for instance. Supply chain management
involves identifying where the value lies within the whole supply chain i.e. identifying
the value chain and then segmenting it so that each segment can be addressed
individually. It is also concerned with analyzing and identifying all the non-value adding
activities across the entire supply chain and removing them. This process is sometimes
referred to as ‘diagnostics. The purpose of this is to diagnose each value segment to
determine whether the organization could improve it whether the value segment could be
more enhanced, whether cost could be taken out or whether knowledge about it could be
bettered, for instance.

Supply chain management is evolving it is becoming more complicated with many

organizations having 80% of their turnover comprising bought-in goods and services.
This trend has been exacerbated by an increase in outsourcing; make/buy decisions
resulting in more goods and services being bought in, and longer-term partnering
arrangements leading to fewer key suppliers who are more willing to take a greater
responsibility for efficient upstream supply chains. Technology, notably eProcurement,
eMarket places and eAuctions, are creating new and alternative upstream supply chains

42
which also have to be managed. Some organizations have outsourced their production to
their suppliers so that the organization's role becomes one of brand management; this is
an example of where supply chain management is critical to the success of an
organization. Practical aspects/issues associated with supply chain management within
the organization will vary from one organization to another and from one industrial sector
to another but a typical list might include:

• Perception by individuals that supply chain management represents a threat; for

example, the job profile may change perhaps necessitating new approaches to
supplier management

• Suppliers, buyers, manufacturers and sub-contractors may all be at different levels

of development

• Upstream - some clients are keen to develop supply chain management, but the
great majority is price-driven - therefore education as to the benefits of supply
chain management is very important

• Board members sponsor the supply chain management program and the work
being carried out by the buying teams

• Whole cost rather than lowest price is key

• Supply chain management will only be a success where the relationship is two-
way and risk/ profit/opportunities are shared

Supply chain management has a strategic role to play within the organization; it is pivotal
because, as stated above, its spans all demand, right from the end-customer's requirement
to the suppliers that provide the goods and services to meet that need. Sometimes, supply
chain management involves going beyond the suppliers that interface with the
organization to their suppliers, in order that improvements can be made. These may
include removing cost, increasing quality or ensuring ethical, environmental or socially
responsible inputs. Very few organizations’ have worked closely with their suppliers'
suppliers; working at more than two suppliers removed is unusual. Supply chain

43
management involves the sharing of risk with suppliers - this can involve moving the risk
up the supply chains to those suppliers best able to manage it. Such devolution of risk
will come at a cost and so it is to that extent an economic decision. An organization has
to determine the right approach to meet its own objectives; it should therefore evaluate
the economic drivers to develop an appropriate level of sophistication in respect of its
supply chains - this may involve deciding to bear most risks internally. A key
competence is sophisticated interpersonal skills e.g. an ability to persuade, influence,
communicate, facilitate, coordinate and manage the human implications of change.
Another valuable competence is the ability to challenge existing processes, policies,
procedures CIPS encourages all purchasing and supply management professionals to
continually question and challenge where it is appropriate to do so, and not just within the
purchasing dimension. Purchasing and supply management professionals wishing to
promote and develop supply chain management must adopt all of the above skills and
competencies but most importantly, should be able to think in terms of the whole
business. To achieve maximum benefit, supply chain thinking would of course pervade
the whole of the company's corporate strategy; supply chain considerations would be as
integral a part as Marketing, Production or Finance.

Location Decisions:

The geographic placement of production facilities, stocking points, and sourcing points is
the natural first step in creating a supply chain. The location of facilities involves a
commitment of resources to a long-term plan. Once the size, number, and location of
these are determined, so are the possible paths by which the product flows through to the
final customer. These decisions are of great significance to a firm since they represent the
basic strategy for accessing customer markets, and will have a considerable impact on
revenue, cost, and level of service. These decisions should be determined by an
optimization routine that considers production costs, taxes, duties and duty drawback,
tariffs, local content, distribution costs, production limitations, etc. for a thorough
discussion of these aspects.) Although location decisions are primarily strategic, they also
have implications on an operational level.

44
Production Decisions:

The strategic decisions include what products to produce, and which plants to produce
them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets.
As before, these decisions have a big impact on the revenues, costs and customer service
levels of the firm. These decisions assume the existence of the facilities, but determine
the exact path(s) through which a product flows to and from these facilities. Another
critical issue is the capacity of the manufacturing facilities--and this largely depends the
degree of vertical integration within the firm. Operational decisions focus on detailed
production scheduling. These decisions include the construction of the master production
schedules, scheduling production on machines, and equipment maintenance. Other
considerations include workload balancing, and quality control measures at a production
facility.

Inventory Decisions:

These refer to means by which inventories are managed. Inventories exist at every stage
of the supply chain as either raw material, semi-finished or finished goods. They can also
be in-process between locations. Their primary purpose to buffer against any uncertainty
that might exist in the supply chain, since holding of inventories can cost anywhere
between 20 to 40 percent of their value, their efficient management is critical in supply
chain operations. It is strategic in the sense that top management sets goals. However,
most researchers have approached the management of inventory from an operational
perspective. These include deployment strategies (push versus pull), control policies ---
the determination of the optimal levels of order quantities and reorder points, and setting
safety stock levels, at each stocking location.

A Supply Chain encompasses all activities in fulfilling customer demands and requests.
These activities are associated with the flow and transformation of goods from the raw
materials stage, through to the end user, as well as the associated information and funds
flows. There are four stages in a supply chain: the supply network, the internal supply
chain (which are manufacturing plants), distribution systems, and the end users. Moving
up and down the stages are the four flows: material flow, service flow, information flow

45
and funds flow. E-procurement links the supply network and manufacturing plant, e-
distribution links the manufacturing plant and the distribution network, and e-commerce
links the distribution network and the end users. The supply chain begins with a need for
a computer. In this example, a customer places an order for a Dell computer through the
Internet. Since Dell does not have distribution centers or distributors, this order triggers
the production at Dell’s manufacturing center, which is the next stage in the supply chain.
Microprocessors used in the computer may come from AMD and a complementary
product like a monitor may come from Sony. Dell receives such parts and components
from these suppliers, who belong to the up-stream stage in the supply chain. After
completing the order according to the customer’s specification, Dell then sends the
computer directly to the users through UPS, a third party logistics provider. This
responsive supply chain is illustrated i In this supply chain, Dell Computer is the captain
of the chain; the company selects suppliers, forges partnerships with other members of
the supply chain, fulfills orders from customers and follows up the business transaction
with services. Now, consider a case of purchasing a pack of Perdue chicken breast at
Sam’s Club. When customers buy trays of chicken breast at Sam’s Club, the demand is
satisfied from inventory that is stocked in a Sam’s Club distribution center. Production at
a Perdue Farms manufacturing facility is based on forecasted demand using historical
sales data. Perdue Farms runs a vertical supply chain starting from the eggs, to the grains
that feed chicks proceeding to manufacturing, packaging, and delivery. Packaging
materials come from suppliers.

46
Supply Chain in e-business environment

Supply Chain Management is a set of synchronized decisions and activities utilized to

efficiently integrate suppliers, manufacturers, warehouses, transporters, retailers, and
customers so that the right product or service is distributed at the right quantities, to the
right locations, and at the right time, in order to minimize system-wide costs while
satisfying customer service level requirements. The objective of Supply Chain
Management (SCM) is to achieve sustainable competitive advantage

Information technology is the key driving force for moving material management to
supply chain management in the second half of the 20th century. In 1970, the cost of one
megahertz of computing power was $7,600. By the end of the century, it was 17 cents.
The cost of storing one megabit of data was $5,256 in 1970. It is less than 17 cents now.

Ever since the 1960s, technology has enabled business to create tools to ease the
management of materials. The stages of the business model evolution are illustrated in
Figure 1.3, with Bill of Materials (BOM) processor in the early 60s, Material
Requirement Planning (MRP) in the 70s, Manufacturing Resource Planning (MRPII) in
the 80s, Enterprise Resource Planning (ERP) in the 90s, and supply chain management

47
(SCM) packages in the early twenty-first century. The impact in the evolution of
advanced technology and computer power on materials and supply chain management is
phenomenal. In the early 1960s, a BOM processor was written on a 1400 disk computer
in Milwaukee. In mid 1960, the first use of the computer for planning material was
introduced and was named MRP. IBM was the first to introduce MRP software to the
market. The significance of MRP is that it identifies what product is required by the
customer; compares the requirement to the on-hand inventory level and calculates what
items need to be procured and when. By itself, MRP does not recognize the capacity
limitation. It will schedule order release even when the capacity is not available. Closed
loop MRP was then introduced to include capacity requirement planning as a part of
material requirement planning. Advancement of computer capacity makes the extra
mathematical computations for capacity planning available and affordable. In the Mid
80’s, Manufacturing Resource Planning (MRPII) evolved out of MRP and closed loop
MRP. MRPII is a method for the effective planning of all resources of a manufacturing
company. MRPII closed the loop not only with the capacity planning and accounting
systems but also with the financial management systems. Consequently, all the resource
of a manufacturing company could be planned and controlled as the information became
more accessible using MRPII. In the 1980s, labor cost decreased and material cost
increased due to the automation of production process. Reducing inventory and
shortening lead-time became inevitable to survive the competition. Companies searched
for new business paradigms that would lead to competitive advantage. Just in Time
(JIT), Theory of Constraints (TOC) and Total Quality Management (TQM) are examples
of strategies that helped companies to improve production processes, reduce costs and
successfully compete in a variety of business environments. This led to the development
of ERP systems that give complete visibility to the organization, integrating previously
stand-alone systems. ERP became more acceptable during the mid- and late 1990s. ERP
is not just MRPII with a new name. ERP is the next logical sophistication level in an
evolutionary series of computer tools for material and supply chain management. ERP
systems provide an integrated view of information across functions within a company and
with the potential to go across companies. In late 90s and the beginning of 21st century,
electronic communications as opposed to paper transactions allow for a decrease in

48
amount of lead-time required to replenish inventory. Cutting lead-time minimizes the
risk of uncertainty in demand and decreases the probability of over or under-stocking
inventory. The 90s marked the wide use of the Internet. This provided great opportunity
for companies to integrate E-commerce into their business models. The primary
emphasis during that period was business-to-customer (B2C). Today, the emphasis
expands to include business-to-business or B2B. Back-end system integration, especially
supply chain management provides greater visibility and more strategic capability for
companies to improve profitability and competitiveness. Supply chain management
models emerged. A supply chain consists of all stages involved, either directly or
indirectly, in fulfilling a customer request.

One of the causes of supply chain failure is due to the lack of understanding of the nature
of demand. The lack of understanding often leads mismatched supply chain design.
Fisher (1997) suggested two distinctive approaches, efficient supply chain and responsive
supply chain, to design a firm’s supply chain. The purpose of responsive supply chain is
to react quickly to market demand. This supply chain model best suites the environment
in which demand predictability is low, forecasting error is high, product life cycle is
short, new product introductions are frequent, and product variety is high (Table 1.1).
The responsive supply chain design matches competitive priority emphasizing on quick
reaction time, development speed, fast delivery times, customization, and volume
flexibility. The design features of responsive supply chains include flexible or
intermediate flows, high-capacity cushions, low inventory levels, and short cycle time.

The purpose of an efficient supply chain is to coordinate the material flow and services to
minimize inventories and maximize the efficiency of the manufacturers and service
providers in the chain. This supply chain model best fits the environment in which
demands are highly predictable, forecasting error is low, product life cycle is long, new
product introductions are infrequent, product variety is minimal, production lead-time is
long and order fulfillment lead-time is short. The efficient supply chain design matches
competitive priority emphasizing on low cost operations and on-time deliver.

49
Efficient supply chain and responsive supply chain

Demand is forecasted based on historical sales data. The need from the end users is
satisfied from inventory. Production lead-time is relatively long and finished goods
inventory is more than that of the pull system. The major technical sophistication that
has been applied in the supply chain is Perdue Farms’ vertical integration, which focuses
on “We do it all for you.” In the pull approach, end users trigger the production of
computers at Dell’s manufacturing factory. The major production strategy is make-to-
order, assemble-to-order, and build-to-order. In a pull scenario, demand uncertainty is
higher and cycle time is shorter than that of the push approach. Finished goods inventory
is minimal. Dell is an obvious captain of the supply chain. The major technical
sophistication that has been applied in the supply chain is Dell’s direct model, which
focuses on “Have it your way.”

50
Pull vs Push Process

The distributor’s orders placed to the factory fluctuated much more than retail sales. In
addition, P&G’s orders to its suppliers fluctuated even more. This phenomenon of
increasing variability in demand in a supply chain is referred to as the bullwhip effect.
The bullwhip effect is essentially the artificial distortion of consumer demand figures as
they are transmitted back to the suppliers from the retailer. One way to address the
bullwhip effect caused by order batching is to collaboratively plan production, forecast
demand, and replenish inventory. This will lead to smaller order sizes, smoothed
production volumes, and more frequent order replenishment. The result will be a
smoother flow of smaller orders that the distributors and manufacturers are able to handle
more efficiently. In recently years, retailers have initiated collaborative agreements with
their supply chain partners to establish on going planning, forecasting, and replenishment
process. This initiative is called collaborative planning, forecasting, and replenishment
issues (CPFR). The Association for Operations Management defines CPFR as follows:
“Collaboration process whereby supply chain trading partners can jointly plan key supply
chain activities from production and delivery of raw materials to production and delivery

51
of final products to end customers” - The Association for Operations Management” - The
Association for Operations Management.

The objective of CPFR is to optimize supply chain through improved demand forecasts,
with the right product delivered at right time to the right location, with reduced
inventories, avoidance of stock-outs, and improved customer service. The value of CPFR
lies in the broad exchange of forecasting information to improve forecasting accuracy
when both the buyer and seller collaborate through joint knowledge of sales, promotions,
and relevant supply and demand information.

Companies that are able to establish collaborative supply chains will have a significant
competitive edge over their competitors. Prominent companies are already beginning to
lead the way. Companies such as Wal-Mart, Dell Inc., and Proctor & Gamble share point
of sales data with all the other companies in their respective supply chains. The
companies in these supply chains are also starting to share inventory data with each other.
Sharing this kind of information provides a basis for each company to make decisions
about its own activities that will yield better efficiencies and more profits for itself and
for the supply chain as a whole. Collaboration in production, forecasting, and
replenishment brings a number of benefits. First, the bullwhip effect is diminished
because all companies in the supply chain have access to real time sales data and share
sales forecasts. This allows every member in the same supply chain to develop a better
production plan, ideal inventory levels, and realistic delivery schedules. Next, everyone
in the supply chain shares rise and decline in customer demand. Adjustment to the
previously planned production levels is made accordingly.

Secondly, transportation infrastructure varies from country to country across Europe.

The geography of a country affects accessibility, which in turn influences both
transportation methods as well as distribution networks. For example, Italy chooses a
more local distribution network due to its compartmentalized geography. Holland, on the
other hand, tends to use a more centralized distribution network with its relatively
accessible geography. These transportation and distribution issues have led some firms
to establish regional stockholding distribution centers, which may reduce the need and

52
reliance on extensive distribution networks and reduce the dependency on transportation.
A considerable disadvantage of localized transportation systems in Europe is its relatively
low usage of rail to transport freight. Poorly maintained infrastructure in some Eastern
European countries, as well as differences in rail gauge size, technical standards, and
height/width allowances between countries within Europe are the issues that slow down
the development of supply chain management. Finally, the application of current
technology also varies from country to country. Unlike the U.S., the availability of
reliable Internet access and current technologies is not always a given in all countries
throughout Europe. The variation of Internet access from region to region has a
significant impact on the ability of firms to conduct collaborative planning, forecasting
and replenishment within the supply chain in order to compete on a global level.
Although the continent and its countries are fighting to overcome some inherent
challenges, Europe has made some significant strides forward and has implemented
innovations to overcome some of these challenges. Mobile commerce (m-commerce),
vehicle tracking and dispatching, radio frequency identification (RFID) tags, silent
commerce applications, and collaboration are few examples of recent development in
Europe. High cell phone usage level has led to the development of mobile networks that
are integrated into back end operation.

Supply chain management in Asia is considered more fragmented and less competitive
than those in the United States and Europe, but the gap between these regions is closing.
First, the Asian market is made up of many countries varying in culture, religion, political
system, language, legal system, and stages of economic development. Some of the major
countries include Japan, China, India, Australia, Indonesia, South Korea, and Thailand.
This list of countries presents an obvious diversity in various aspects. Culturally
speaking, most Asian cultures differ greatly from Europe and the United States. As an
example, Asian culture values relationships greatly, and they are established over time
and past dealings. This precludes the establishment of quick business deals. The focus
tends to be on the establishment of respectful relationships over time. Second, the
transportation infrastructure in many developing countries in Asia is less developed as
compared to that of the US and Europe. Traditionally, rail transportation was a dominant
public transportation in countries such as India, China, and Japan. Air transportation is

53
undergoing fast development in recent years, and highway construction is advancing at a
rapid pace. For example, China is aggressively developing its highway system as well as
improving the efficiency of its rail freight industry. In 2000, 50,000 kilometers of new
highway was added in China. Finally, technology is also a major concern to developing
efficient supply chains in Asia. There is weak availability of information technology in
many developing Asian countries. Lowering production costs has been prevalent in Asia.

54
 CHAPTER 4: RESEARCH METHODOLOGY

Research is defined as human activity based on intellectual application in the

investigation of matter. The primary purpose for applied research is discovering,
interpreting, and the development of methods and systems for the advancement
of human knowledge on a wide variety of scientific matters of our world and the
universe. Research can use the scientific method but need not do so.

Statement of the problem

The participants in a supply chain are continuously making decisions that affect how they
manage the five supply chain drivers. Each organization tries to maximize its
performance in dealing with these drivers through a combination of outsourcing,
partnering, and in-house expertise. In the fast-moving markets of our present economy a
company usually will focus on what it considers to be its core competencies in supply
chain management and outsource the rest. This was not always the case though. In the
slower moving mass markets of the industrial age it was common for successful
companies to attempt to own much of their supply chain. That was known as vertical
integration.

Objectives of the Study

• To study Supply chain management opportunities and challenges in Wadhokar Group

of Companies.

• To carry out supply chain opportunity analysis with reference to Wadhokar Group of
Companies.

• To understand methods/application used to manage the export logistics at Wadhokar

Group of Companies.

55
Scope of the Study

Thus Supply Chain Management includes managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing and inventory tracking,
order entry and order management, distribution across all channels, and delivery to the
customer.

Supply Chain (SC) has appeared for the first time in the literature more than thirty years
ago when proposed the first definition for the management of such systems. Since then,
the SC management (SCM) area has grown considerably at both research and industrial
levels, and SC is nowadays bedrock systems in any organization. SC, in its classical form
– forward supply chain, are viewed as a combination of processes aimed at fulfilling
customers’ requests, that include all possible network entities such as suppliers,
manufacturers, transporters, warehouses, retailers and customers, whose main purpose is
the customer´s satisfaction at a minimum cost. However, such a purpose has enlarged
over time, and SC has been expanding their activities towards the goal of integrating not
only economic, but also environmental aspects. Reverse logistics activities have been
incorporated within the existing networks, and the collection and treatment of end of life
products through recycling, or remanufacturing, repairing, and/or finally disposing of
some used parts, have been considered within those networks. This led to the dawn of the
closed-loop supply chain (CLSC). CLSC are logistic systems whose design, planning and
operation aim to maximize value creation over the entire life cycle of a product, pursuing
a dynamic recovery of the product value from different types and volumes of returns.

Recently, this trend has been widening to include not only the economic and
environmental concerns, as the ones present in the CLSC, but also social concerns,
following the requisites defined by the World Commission on Environment and
Development for Sustainable Development (WCED, 1987), where sustainability was
defined as the “use of resources to meet needs of the present without comprising the
ability of future generations to meet their own needs”. This has resulted in the appearance

56
of the Sustainable Supply Chain (SSC) area, which is nowadays recognized as a
challenging area by both academics and industrialists.

Sustainable Supply Chain (SSC) can be described as complex network systems that
involve diverse entities that manage the products from suppliers to customers and their
associated returns, accounting for social, environmental and economic impacts. The
treatment of such systems has recently gained a noticeable importance, as companies face
the challenge of dealing with sustainable issues caused by growing society's awareness
towards environmental and social problems. The United Nations Global Corporate
Sustainability report identified an intense shift in corporate attitudes towards
sustainability. Even facing one of the worst economic downturns in nearly a century,
commitments to sustainability supply chain principles are now at a historic high. But
while companies are making progress in terms of setting expectations for supply chain
sustainability, most fail to implement tangible measures to drive adherence to such
actions.

This is justified by several reasons. The first one is related to the understanding of the
true meaning of SSC within the organizations and how this should be managed amongst
the different entities involved. Additionally, as interest in responsible SCM grows,
increasing numbers of initiatives have sprouted up in every sector promoting various
methods and standards, leaving companies with the discouraging task of identifying the
best practices to use. Thus, a clear understanding of the meaning of SSC and of what is
important at the corporate level is essential. Moreover, the sheer size and complexity of
global SC means that companies that begin their journey towards sustainability need tools
to support their decision-making process from the strategic to the operational levels,
where the presence of uncertainty and risk is a rising reality that must be dealt with.

Research Design
A research design is the arrangement of condition for collection and analysis of data in a
manner which may result in an economy in procedure. It stands for advance planning for

57
collection of the relevant data and the techniques to be used in analysis, keeping in view
the objective of the research availability of time.

There are three types of research designs. They are,

 Exploratory research design.
 Conclusive research design.
1. Descriptive research design.
2. Causal research design.
 Performance monitoring research.

The Research design used in this study was descriptive research design. It includes
surveys and fact-finding enquiries of different kinds. The main characteristic of this
method is that the researcher has no control over the variables; he can report only what
has happened or what is happening.

Data Collection:

The data has been collected through primary as well as secondary research. The
secondary data of the research for the project has been collected through websites
of various retail sector and SCM related journals. The primary data has been
collected through questionnaire as a research tool.

Primary Data: Information is gathered by the researcher himself. Primary data will be
collected through questionnaires and informal interviews.

Secondary Data: Secondary data will be collected through internet, Published articles in
the newspapers, magazines, journals and Books.

Sampling Method: Random sampling method would be used for the proposed research.

Sample Size: 60

Area of Study: Pune

Target Audience: Employees of Wadhokar Group of Companies.

58
Limitations of the Study

The main three limitations of this research are time, finance and access.

• The research is time crucial due to the deadline placed on the submission of the
final research findings.

• Therefore, starting from sampling till data collection everything needs to be done
as quickly as possible thus leaves researcher with limited amount of time.

• Access to Industry data may be an issue because the researcher will not be able to
reach employee due to limited time.

59
 CHAPTER 5: DATA ANALYSIS AND INTERPRETATION

Q1. Gender

Gender

13%

87%

Male Female

Interpretation:

The above figure shows the split of sample between the genders of the respondents as
87% of the respondents were male and rest of them was females.

60
Q2. From how many years you have been working in the organization?

Interpretation:

30% respondents replied that they have been working in this organization from 2 to less
than 4 years but 15% respondents replied that they have been working in the organization
from 4 to less than 6 years.

61
Q3. Which of the following methods/application you used to manage the export
logistics? (Select all that apply)

11% 16%
7%
5% 12%

9%
17%
23%
Supply Chain Benchmarking Plan strategically
e-procurement JIT supply
Outsourcing Few suppliers
Many suppliers Subcontracting

Interpretation:

The above figure represents the systems and application used by the companies for
managing their supply chain. 23% of the respondents replied that they use Just in Time
approach and 17% said that e-procurement is the most prominent system used in their
company for effectively managing the supply chain. Both these systems are very old in
the field of supply chain and provide the greater benefits without incurring any additional
cost to the companies.

62
Q4. For each of the above-mentioned method/application, what do you think your
company requires for managing the export logistics effectively?

80
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p
Su

Improvement Planning to Implement Already implemented and satisfied Not at all Relevant

Interpretation:

The above figure indicates the requirement of the companies for managing their supply
chain. Supply chain benchmarking and plan strategically are the areas where the
companies are seeking the improvement for managing their supply chain effectively.

63
Q5. Do you think your company is successful in managing the supply chain? Please
rate your opinion on the scale of 1 to 5 where 1 means not at all successful and 5
means very successful.

17% 21%

18%

29%
15%

Very Successful Successful Somewhat Successful

Not Successful Not at all Successful

Interpretation:

The above figure provides the agreement of the companies towards the success or failure
after implementing the various systems/applications for managing the supply chain. 29%
of the respondents replied that the companies are successful with their current systems
since every application or system developed for supply chain gives separate and sure
benefits to the company however it depends on the nature of the business.

64
Q6. Please tell me whether your company has a separate strategic plan for
managing the logistics?

43%

57%

Yes No

Interpretation:

It is essential for the companies to develop strategic plan for managing any of the
business process. in this context above figure shows that 57% of the companies have
strategic plan and remaining companies do not have such plans since they are not sure
whether their supply chain is effectively managed or not.

65
Q7. Please tell me which of the following systems are used within your organization
for managing the supply chain or planning to implement in next six months?

35
30
25 11
20 9
15 14
15 13
10 4 8 6 19
3 8 3 16
5 10 8 7 10 4 7
6 5 2 4 5 2
0 e
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ng

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en
en

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st
em

em
nn

ica

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ys

ys
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co
an

an

Sy
n

a
m

tS

ts
ag

rc
ag

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tif
Pl

Pl

Pl
ar

ng
co

te
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an
en
an

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ts

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In
E-

ni

pp
ce
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em

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ur

y
m

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at
ps

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nc
Pl
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hi
hi

Re

ue
an

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io
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ni
q

eq
M

nc
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ti o

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ris

De
Fr
se

va
rin
la

ela
rp

ec
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ia

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Ad
tu
te

rR

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El
er

ac
eh

En

Ra
er
at

lie
uf
ar
m
M

an

pp
W
o
st

Su
Cu

Currently Using Planning to Implement

Interpretation:

The above figure shows the applications which have been implemented or being
considered by the companies for managing the supply chain. Enterprise resource
planning, decision support system and electronic data interchange are the most desired
applications which are currently used by the companies and also the remaining
companies are considering implementing them. All the three applications are new to the
system and include greater benefits for effectively manage the supply chain process
within the organization.

66
Q8. How much do you think the above system(s) is effective in managing the supply
chain within your has the benefits?

4%
18%
34%

15%

29%

Huge benefits Average Somewhat Little Not at all

Interpretation:

The above figure provides the consent of the companies for having benefits by
implementing the above mentioned systems in the supply chain process. 29% of the
respondents replied that their companies are having average benefit however 34% said
that their companies are having huge benefits by implementing such system in place.

67
Q9. What are the primary goals for managing the supply chain? Please select from
the following.

25

20

15

10 21
19
15
5 11 10
8 9
7

0
Im proving the Im proving the Reducing the Cost Saving Increasing the Optim izing the Forecasting Flexibility
quality of coordination lead tim e sales business
inform ation am ong the process
departm ents

Interpretation:

The above figure shows the primary goals of the companies for managing their supply
chain. Cost saving is the most desired goal for the companies looking at the current
economic crisis and credit crunch. Increasing sales, improvement in the quality of
information, optimizing the business process and forecasting are the second preferences
of the companies to manage their supply chain.

68
Q10. Have you met the desired goals by currently using or implementing the above
systems selected in q 5?

12% 19%

27%
27%
15%

Met successfully Average Somewhat Little Not at all met

Interpretation:

The above figure shows the consensus of the companies for meeting the desired goals by
implementing the various systems and applications in their supply chain. There are more
than 39% of the companies that have met their desired goals however those which are
still seeking the success require the consultant expertise for fully implement such systems
in place in efficient management of supply chain process.

69
Q11. Please tell me what do you think will be the major reason for developing the
supply chain management within your organization?

33%
47%

20%

Investory optimization
Enhancing customer service
Develping competitve advantage fpr the channel

Interpretation:

The above figure shows the reason for developing the supply chain management within
the company. 47% of the companies want to gain the competitive advantage and second
preference is to optimize the inventory level which leads the greater cost saving
advantage to the companies.

70
 CHAPTER 6: FINDINGS, SUGGESTIONS AND
CONCLUSION

FINDINGS

 The split of sample between the genders of the respondents as 87% of the
respondents were male and rest of them was females.

 30% respondents replied that they have been working in this organization from 2
to less than 4 years but 15% respondents replied that they have been working in
the organization from 4 to less than 6 years.

 The systems and application used by the companies for managing their supply
chain. 23% of the respondents replied that they use Just in Time approach and
17% said that e-procurement is the most prominent system used in their company
for effectively managing the supply chain. Both these systems are very old in the
field of supply chain and provide the greater benefits without incurring any
additional cost to the companies.

 The requirement of the companies for managing their supply chain. Supply chain
benchmarking and plan strategically are the areas where the companies are
seeking the improvement for managing their supply chain effectively.

 The agreement of the companies towards the success or failure after

implementing the various systems/applications for managing the supply chain.
29% of the respondents replied that the companies are successful with their
current systems since every application or system developed for supply chain
gives separate and sure benefits to the company however it depends on the nature
of the business.

 The companies to develop strategic plan for managing any of the business
process. in this context above figure shows that 57% of the companies have

71
 strategic plan and remaining companies do not have such plans since they are not
sure whether their supply chain is effectively managed or not.

 The applications which have been implemented or being considered by the

companies for managing the supply chain. Enterprise resource planning, decision
support system and electronic data interchange are the most desired applications
which are currently used by the companies and also the remaining companies are
considering implementing them. All the three applications are new to the system
and include greater benefits for effectively manage the supply chain process
within the organization.

 The consent of the companies for having benefits by implementing the above-
mentioned systems in the supply chain process. 29% of the respondents replied
that their companies are having average benefit however 34% said that their
companies are having huge benefits by implementing such system in place.

 The primary goals of the companies for managing their supply chain. Cost saving
is the most desired goal for the companies looking at the current economic crisis
and credit crunch. Increasing sales, improvement in the quality of information,
optimizing the business process and forecasting are the second preferences of the
companies to manage their supply chain.

 The consensus of the companies for meeting the desired goals by implementing
the various systems and applications in their supply chain. There are more than
39% of the companies that have met their desired goals however those which are
still seeking the success require the consultant expertise for fully implement such
systems in place in efficient management of supply chain process.

 The reason for developing the supply chain management within the company.
47% of the companies want to gain the competitive advantage and second
preference is to optimize the inventory level which leads the greater cost saving
advantage to the companies.

72
 CONCLUSION

Organizations have multiple objectives like enhanced competitiveness, better customer

service and increased profitability etc. To seek these objectives organizations employ
various defensive as well as offensive business performance improvement approaches.
Often these approaches focus on any one operational area of organization. But the
approach we have discussed (SCM) covers all functional areas of organization. It is the
network of customers, suppliers, manufacturers, and distributors concentrating the flows
of material, information, and finance through physical and human resources. Due to
globalization organizations cannot work as standalone units. There is a continuous need
to interact with supply chain partners to achieve the basic objective of organization.

SCM requires concerted action of all the participants therefore adoption and
implementation cannot be as straightforward as other approaches. Researchers and
practitioners have developed a sustainable body of knowledge by deploying various
qualitative and quantitative tools and techniques. It is observed that organizations have
unique products, operations, culture; and have a different level of compatibility &
adaptability. Therefore, there cannot be one fix solution for all organizations. Depending
upon corporate strategy organizations will have to develop a suitable supply chain
management strategy. It would be a formidable task for managers if they do not
understand the theoretical foundations and practical implications of SCM. In this case it
has suggested that managers must probe why to manage, what to manage and how to
manage the supply chain. We discussed the concept of supply chain management along
with the need of SCM from organization point of view. This provides deeper insights for
those managers investigating the concept of supply chain management.

In order to explore the domain of supply chain management we have argued that one
must examine the nature, interrelations and dependency among business operations. We
interrogated the theory and research practice to find what are the various supply chain
activities. This through analysis of activities sheds light on the potential of supply chain

73
management. Next big challenge for organizations is to make a suitable roadmap for
adoption and implementation. We have suggested a six-step approach to meet this
challenge. This step-by-step assessment of business operations would certainly assist
organizations to completely understand the concept of supply chain management. Sooner
or later all organizations would adopt SCM; therefore, we recommend that managers
should examine the domain of SCM to achieve business excellence. Current trends like
outsourcing, information technology adoption and third-party logistics presents an
opportunity for development of SCM. It is felt that in future all organizations will have to
adopt partnership information sharing initiative with suppliers. Therefore, establishment
of mutual trust within supply chain to share the vital information for effective SCM
practice; and development of suitable mathematical model for the same would be the
greatest challenge for researchers and practitioners.

SUGGESTIONS

SCM is management of material, money, men, and information within and across the
supply chain to maximize customer satisfaction and to get an edge over competitors.
Customers want products at the right place and at the right time. For this, there should be
an excellent synchronization between the manufacturer and the customers. This was the
origin of the “Barter system” as we all know. As things started becoming complicated,
where one person had to reach many individuals for his needs, one of the individuals
started management of gathering the products from different people and supplying to
those who are in need and thus fulfilling his needs in return. This was the revolutionized
form of the Barter system and today it is known as the supply chain management.
Researchers found that the lack of commonly accepted definition of supply chain
management and the problems associated with supply chain activities makes the
understanding of supply chain management difficult.

Supply chain management is an enormous topic covering multiple disciplines deploying

many quantitative and qualitative tools. There are numerous definitions of SCM;
effectively integrating the information and material flows within the demand and supply
process is what Supply Chain Management is all about. In most companies, however, two

74
major and very interdependent issues must be simultaneously addressed. The first deals
with delivering products with customer-acceptable quality, with very short lead times, at
a customer-acceptable cost - while keeping inventories throughout the supply chain at a
minimum. The second issue, which tends to be less understood and accepted, is the need
for high quality, relevant and timely information that is provided when it needs to be
known. For many customers and manufacturers, business processes and support systems
will not measure up to the task of quickly providing planning and execution information
from the marketplace to production and onto vendors so that the customer’s objectives
are consistently met. Fast access to relevant supply chain information can pay-off
handsomely in lower costs, less inventory, higher quality decision-making, shorter cycle
times and better customer service.

One of the biggest cost savings is in the overhead activity associated with lots of
paperwork and its inherent redundancies. The non-value added time of manual
transaction processing can instead be focused on higher revenue creation activities
without proportional increases in expense. The result in cycle time compression, lower
inventories, decision-making quality, reduced overhead costs, among other benefits
makes Supply Chain Management a highly desirable strategy. Supply chain processes can
be more streamlined and efficient than could have been imagined just a few years ago.
For many companies, more effective Supply Chain Management is where the profit and
competitive advantages will emerge and be sustained.

75
 QUESTIONNAIRE

Q1. Gender
Male
Female

Q2. From how many years you have been working in the organization?
Less than 2 Years
2 to less than 4 years
4 to less than 6 years
More than 6 years

Q3. Which of the following methods/application you used to manage the export logistics?
(Select all that apply)

Supply Chain Benchmarking O

Plan strategically O
e-procurement O
JIT supply O
Outsourcing O
Few suppliers O
Many suppliers O
Subcontracting O
Other, please specify O

Q4. For each of the above mentioned method/application, what do you think your
company requires for managing the export logistics effectively?

Planning Already Not at

Improvement to implemented all
Implement and satisfied Relevant
Supply Chain Benchmarking O O O O
Plan strategically O O O O
e-procurement O O O O
JIT supply O O O O
Outsourcing O O O O
Few suppliers O O O O
Many suppliers O O O O
Subcontracting O O O O
Other, please specify O O O O

76
Q5. Do you think your company is successful in managing the supply chain? Please rate
your opinion on the scale of 1 to 5 where 1 means not at all successful and 5 means very
successful.

Very Successful O5
Successful O4
Somewhat Successful O3
Not Successful O2
Not at all Successful O1

Q6. Please tell me whether your company has a separate strategic plan for managing the
logistics?
Yes
No

Q7. Please tell me which of the following systems are used within your organization for
managing the supply chain or planning to implement in next six months?

Currently Planning to
Using Implement
Material Requirements Planning O O
Customer Relationships Management O O
E-commerce O O
Warehouse Management System O O
Just In Time O O
Enterprise Resource Planning O O
Bar coding O O
Manufacturing Resources Planning O O
Supplier Relationships Management O O
Advanced Planning System O O
Radio Frequency Identification O O
Electronic Data Interchange O O
Decision support system O O
Other, please specify O O

Q8. How much do you think the above system(s) is effective in managing the supply
chain within your has the benefits?

Huge benefits O
Average O
Somewhat O
Little O
Not at all O

77
Q9. What are the primary goals for managing the supply chain? Please select from the
following.

Improving the quality of information O

Improving the coordination among the departments O
Reducing the lead time O
Cost Saving O
Increasing the sales O
Optimizing the business process O
Forecasting O
Flexibility O
Others, please specify O

Q10. Have you met the desired goals by currently using or implementing the above
systems selected in q 5?

Met successfully O
Average O
Somewhat O
Little O
Not at all met O

Q11. Please tell me what do you think will be the major reason for developing the supply
chain management within your organization?

Inventory optimization O
Enhancing customer service O
Developing competitive advantage for the channel O
Others, Please specify O

78
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