1, OpsSession, Vol.

IV, Issue 1, January 2009

The IIML Operations Interest Group Newsletter

Editorial
Hello friends, The Operations Interest Group (OIG) of IIML welcomes you to Manfest. Its the time when participants rack their gray cells and direct all their energies to claim titles among various events. This Manfest is bigger and better than earlier. So has been our endeavor at OIG to bring in more challenging and exciting events. This year, we showcase Ozone (Biz theatre) and Opstrix (Arcade event), the operations arena of MANFEST 2009.. This newsletter is an attempt of OIG team at IIML to facilitate learning and knowledge-sharing amongst the student community in the field of operations. It aims to create awareness of the happenings in the field, application of concepts in the industry and with live experiences. All the articles of OpsSession will also be placed on an online blog for your convenience. To read our newsletter on the web, please visit www.OpsSession.blogspot.com. At OIG, it is our constant endeavor to serve you better. Keep mailing in your feedback, articles or any material you feel will help us improve the quality of OpsSession to oig@iiml.ac.in
Contents: Continual improvement a key to sustainability Ops - News TOC in Production Ops - Gyaan Supply -chain challenges in Indian Retail Designing effective supply chain using RFID

Schedule: Event Schedule: OZONE: 17th January, 1500 hrs | OPSTRIX: 18th January, 1500 hrs

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Continual improvement a key to sustainability

If you can't measure it you can't manage it If you don't measure it you probably don't care -- Anonymous

Indian companies have experienced a rapid growth & heavy competition after the economic reform due to entry of Multinational giants in the country. The business equation has changed. Change is inevitable; it is the key to sustain in todays competitive and dynamic business environment. If change is anticipated, monitored, and quickly adapted, then it becomes enjoyable & beneficial. The industry has witnessed enormous improvements or the mere changes in last decade. The words change and improve are many times used interchangeably ,since change is essential to improve , it is a common mistake too assume that change equals improvement. However, just something is changed doesnt necessarily means that it is improved. It is very important that everyone understands the true meaning in sufficient details from an overall business point of view. What are the expected benefits of the change and how it will help us to achieve the ultimate goal..?Mere change is not sufficient, we need to improve. Improvement is nothing but change for better. It is a fundamental change in the value delivery system. Improvement = Change + benefits Henry Ford's first assembly line was very different from manufacturing systems today. It was the first radical step towards improvement. Improvement can be anything, either a change in layout, location, process, and product design or procurement strategy. A change to eliminate non value adding tasks or addition of an advanced value adding process can also be improvement The success story of Toyota Production system (TPS) has evoked a deep interest across the globe, for implementing their effective manufacturing techniques. The key to success of TPS was Kaizen, Poka yoke, TPM, SMEDetc.Different people have different understanding of these techniques in terms of feasibility of implementation, expected benefits & potential risks.In my last couple of years experience in manufacturing, I found myself using many Buzzwords, from ABC to Zero Defects (ZD). I understood that the fundamental goal of each initiative is to improve. KAIZEN -- Continuous Improvement TPM -- Improvement in the machine breakdown rate, POKA YOKE (Mistake Proofing) -- Improved defect percentage SMED (Single Minute in digit Exchange of Dies) -- Improved (reduced) setup time TQM, root cause analysis, Benchmarking, Statistical process control are widely used in industry. Many times we use these technical jargons just for sake of it. These techniques work only if you use them as tools rather than goals, but many times most of us interpret these Buzzwords incorrectly. The resistance for the implementation of these techniques is the result

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of misunderstandings of change initiatives among the employees. Positive employee involvement is the key to success. The all techniques, not only TPS but also APQP (Advanced product Quality & Planning) is an important part of the Continuous Improvement. But realizing successful and sustainable change through it, without first having a tested and consistent methodology base is more luck than system. We have to use some quantitative measures to manage the process. Unless you know the expected benefits of improvements, it doesnt make sense to invest for it. The benefits of improvements can be measured in following terms i.e. PQCRSME

Quantitative measure P Productivity Increase in output or decrease in input Elimination of process of labor Reduction of waste Improved functionality or reliability Improved Cp , Cpk Reduction in defect /rework /rejection Reduction in cost of material Reduced cost of process or labor Reduction in cost of transportation Reduced lead time , Increased customer response, Reduction in delay Employee engagement No. of improvement initiatives per person Improved safety of machine / equipments Reduction in frequency of accidents Effectiveness procurement strategy Reduction in total manufacturing lead time Efficiency distribution network

Quality

Cost

R M S E

Responsiveness Employee moral Safety Efficienct supply chain

Now, we clearly understand, following key factors (Pillars) for successful implementation of improvement techniques. 1. Correct understanding of the technique & expected benefits 2. Employee Involvement in improvement initiatives 3. Correct implementation methodology. Today with this fundamental rethinking, we can improve to achieve the mission of sustaining in the competitive world. Every company that is involved in improvement initiatives will have its own story to tell and will have its own methodology to overcome roadblocks unique to it. But, what about the future? Where are we heading..?

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I believe that tomorrows way of business relies on our current actions, rather improvements, There is a common thread of Continual improvement for business processes, and we are heading towards a common directionsustainable growth by improving efficiency of value chain.

Authored By: Amit supe (PGP24227)

Ops - News
India's logistics sector to up IT spend The Indian logistics industry is on track to attract significant IT spending due to an overall growth among its players, according to a study conducted by Kale Consultants. The logistics provider said in a press release IT spending from logistics players in India is expected to grow at a compound annual growth rate (CAGR) of 20 to 22 percent over the next five years, to cross 1,000 crores (US$209 million) in 2013, up from the current spend of 400 crores (US$83.6 million). Third-party logistics players are growing at over 25 percent. Small and medium family-owned enterprises are growing in stature with global majors committing huge investments to their Indian operations. According to an IDC survey conducted earlier this year, RFID sits among the top purchases on CIOs' lists for next year. HUL to streamline supply chain Hindustan Unilever Ltd (HUL), Indias largest fast moving consumer goods company, is expanding its Go To Market (GTM) initiative as part of plans to revamp its national distribution network and streamline the supply chain. The initiative began in Mumbai in

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November 2008. It will be rolled out to 42 cities and towns across India by the end of 2009 and HUL has plans to expand it even further over time India: Quality standards for thermally processed foods The Ministry of Health and Family Welfare issued a draft gazette notification on December 30, 2008 related to the quality standards for thermally processed fruit juices, fruit and vegetable chutney, carbonated fruit beverages or fruit drinks, ready-to-serve (RTS) fruits and vegetable beverages, soup powders, fruit powders, mixed powders, nectars, etc.. Supply chain cost optimization India summit on 27/02/09,Mumbai (initiative by India supply chain council) The Cost Optimization Summit has one goal: to bring together in one place all the decision makers looking for efficiency, to give them access to the best practices in a range of different areas: procurement, finance, corporate travel, logistics This event will offer best practices on costs optimization through conferences sessions, case studies, workshops and a compact exhibition space. The Cost Optimization Summit is an enriching and rewarding event for all executives and operational leaders involved or simply interested in cost optimization programs.

Implementing the Theory of Constraints (TOC) In Production

The Theory of Constraints was developed and popularized by Eliyahu Goldrat. Most people are first exposed to the concepts through his book, The Goal (North River Press, 1984). TOC, as it is commonly called, recognizes that organizations exist to achieve a goal. A factor that limits a company's ability to achieve more of its goal is referred to as a "constraint." It is imperative for businesses to identify and manage constraints. "Because a constraint is a factor that limits the system from getting more of whatever it strives for, then a business manager who wants more profits must manage the constraints. There really is no choice in the matter. Either you manage constraints or they manage you." Noreen, Smith, and Mackey in The Theory of Constraints and its Implications for Management Accounting (North River Press, 1995). To manage constraints (rather than be managed by them), Goldratt proposes a five-step Process of on Going Improvement. The steps in this process are:

Identify; Exploit; Subordinate; Elevate and Go back to Step 1

Identify In order to manage a constraint, it is first necessary to identify it. Concentrating on a nonconstraint resource would not increase the throughput (the rate at which money comes into the system through sales) because there would not be an increase in the number of products assembled. To increase throughput, flow through the constraint must be increased. Exploit Once the constraint is identified, the next step is to focus on how to get more production within the existing capacity limitations. Goldratt refers to this as exploiting the constraint

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Subordinate Exploiting the constraint does not ensure that the materials needed next by the constraint will always show up on time. This is often because these materials are waiting in queue at a nonconstraint resource that is running a job that the constraint doesn't need yet. Subordination, which is Step 3, is necessary to prevent this from happening. The most important component of subordination is to control the way material is fed to the non-constraint resources. Conventional practice is to keep efficiencies high by releasing enough material to keep everyone busy - regardless of whether the constraint can process that much material. TOC wisdom says that non-constraint resources should only be allowed to process enough materials to match the output of the constraint. The release of materials is closely controlled and synchronized to the constraint schedule. Elevate After the constraint is identified, the available capacity is exploited, and the non-constraint resources have been subordinated, the next step is to determine if the output of the constraint is enough to supply market demand. If not, it is necessary to find more capacity by "elevating" the constraint. Go Back to Step 1 Once the output of the constraint is no longer the factor that limits the rate of fulfilling orders, it is no longer a constraint. Step 5 is to go back to Step 1 and identify a new constraint because there always is one.

Ops - Gyaan
Factors
inventory Lot-size

Japanese kanban
A liability. Every effort must be extended to do away with it. Immediate needs only. A minimum replenishment quantity is desired for both manufactured and purchased part. Make them insignificant. Requires either rapid changeover to minimize impact on production, or availability of extra machines for setup Eliminate them. When problem occurs, identify the causes and correct them

American Philosophy
An asset. It protects against forecast errors, machine problems, and late vendor deliveries. Formulas. Revising the optimum lot size with some formula based on trade-off between the cost of inventories and the cost of set up. Low priority. Maximum output is the usual goal. Rarely does similar thought and effort go into achieving quick changeover Necessary to permit succeeding operations to continue in the event of a problem with the feeding operation. Adversaries. Multiple sources are the rule, and its typical to play them off against each other Quality Tolerate some scrap. Usually track what the actual scrap has been & develop formulas for predicting it As required. But not critical because of long queues. The longer the better Management by edict.

Set-ups

Queues

Co-workers. They are a part of the team. Multiple deliveries of all items are expected daily. Zero defects. If quality is not 100% production Quality is in jeopardy. Constant and effective. Machine breakdowns Equipment maintenance must be minimal Keep them short Lead Times Workers Management by consensus Workers Vendors

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Supply chain challenges in Indian Retail

RETAIL IN INDIA India has been topping the AT Kearney's annual Global Retail Development Index (GRDI) for three consecutive years, thus presenting itself as an attractive market for retail investment. The sector is witnessing inflow of large domestic conglomerates, like Reliance, Bharti, AV Birla Group; and international conglomerates such as Wal-Mart, Marks & Spencer etc. In addition, large investment announcements have been made both in the front as well as back-end operations of the industry. For instance Reliance industry has earmarked Rs. 25,000 crore for investment into retail foray.1 About 35% to 40% of this would be spent in the rural retail - mainly dealing with logistics supporting urban retail.1 But to reach the penetration of about 10% by 2011 the amount of investment required would be 52 billion according to Technopak advisors.
Indian Retail Growth

Source: Indias Changing Consumer And Retail Landscape, Technopak

The Indian retail market is the fifth largest retail destination globally. According to leading industry estimates, the Indian retail is estimated to grow from the US$ 412 billion in 2008 to US$ 483 billion by 2010 and $860 billion by 2018.2 Importance of supply chain in retail With this growth in retail, not only front end but the entire network of activities leading to a culmination of a successful retail transaction has undergone a significant development. Supply Chain is no different. In the course of this retail evolution in India, the supply chain has also seen significant activity. After all, Supply chain forms a major part of the sustenance of any retail venture. For the retail venture to flourish successfully, it should have an efficient and well established supply chain. In the modern format, when all the other aspects of retailing have been discarded as being a differentiating factor, the role of supply chain has become even more important. Importance of an efficient supply chain for a retail chain may be assesses from the gamut of areas in which it helps the chain such as sourcing of material for Private Label, supplying of SKUs to the distant tier II and III cities, more and more retailers entering into Food & Grocery segment resulting in need for transportation of perishable items requiring
1 2

http://www.insightory.com/view/271//_consolidation_of_the_indian_retail_industry Indias Changing Consumer and Retail Landscape, Technopak

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cold supply chain, etc. hence it is deemed that from being just a part of the operations of a network, supply chain is soon going to become the source of competitive advantage for some firms. If we look at the global scenario, we already have the example of retail mammoth, WalMart. Wal-Mart is said to have the best supply chain which enables it to pursue the EDLP (Every Day Low Pricing) strategy. The Indian retail is yet to reach that stage and it will be an amalgamation of huge investments, government policies, third party intermediation, and fast changing consumer preferences which will characterize this back end revolution. The key opportunities for investment in a retail supply chain lie in the areas of sourcing, distribution centres (warehouse, cold storage), transportation networks, inventory (both store level and warehouse), supply chain information systems such as warehouse management systems, planning, forecasting, inventory management, etc. different retailers have chosen a different combination of activities that they perform themselves while some activities are being outsourced to 3PLs (Third Party Logistics). On one hand a retail chain like Subhiksha has outsourced most of its back end work; on the other hand some like Reliance are investing heavily in the supply chain network to go for backward integration of their businesses. Some like Vishal Megamart and Pantaloons are excessively into selling of their in-house brands in their stores and have, hence, included manufacturing in their supply chain as well. Indian vs. International Retail Supply Chains The Indian retail has just started to develop. This is in contrast to the major international retailing countries where it has already reached the maturity stage. Due to this, there are still a lot many wrinkles which need to be smoothened out. The Indian retail is still not as effective as that in the global markets with the inventory turns being lower and stock outs being higher than global average. Organized Retail SCM in India With respect to supply chain, the various factors which organized retail impact can be summarized as: Outlook towards Retail SCM: While the organized retail is expected to boom, the supply chain will take more time to develop at the same rate because of a general lack of SCM professionals in the country with even fewer having any experience in the retail sector. Even amongst them, the level of process expertise and best practice skills are low. These factors may prove to be a comma but not a full-stop. However, with the growth of organized retail and with the increasing number of professional courses offered towards supply chain management and retail; number of SCM professionals are gradually focusing more towards a scientific methodology in dealing with the back end supply chain.

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Infrastructure woes: The infrastructure in India is not as well developed as in other countries. Many parts of India still do not have roads and need to be delivered through bullock carts. Hence, any SC strategy for rural retail and tier II and III retail would need to take all these indigenous Indian factors into account. Below is a snapshot of how India fares vis--vis other countries.

Source: Connecting to compete: Trade Logistics in the global economy. The Logistics performance Index and its indicators (2007)

Use of 3PL: Gap between the expectations and the actual level of services provided, and prices charged by the 3PLs are primary reasons why more companies are not looking towards outsourcing their logistics to 3PLs. furthermore, the current service levels of the 3PLs leave a lot to be desired. Hence, a mature company in this field will go a long way towards success. Impact of VAT: The industry was eagerly awaiting an act from the government t o simplify the VAT assessment process across the different states. This VAT system has been recently introduced and not yet implemented to its full impact. When fully implemented, it would have long lasting consequences on the way the supply chain is being developed. The current form of VAT encourages retail trade within a single state, with significant implications on the location of warehouse and accordingly transportation costs. Supply base: Due to the fragmented nature of supply chain in India, the players have to deal with a wide number of other players. This result in lower margins per level for the same amount of good being transacted. Furthermore, additional levels in the supply chain also result in increased overall wastage for the chain as the number of points, at which wastage may take place, increase as well. Major areas of concern With the Indian retail still in its developing stage, there are a lot of issues such as poor infrastructure, lack of mature 3PLs etc that need to be addressed. Till that time, the supply chain will remain inefficient due to the synergistic effects of these issues. The various areas of concern when attending the Supply Chain in the context of retail scenario are as follows: The fragmented nature of transporters, due to poor infrastructure development, result in high lead times, absence of long term relationships and high transportation costs. Due to a fragmented supply base and large number of intermediaries, the product costs get artificially jacked up, resulting in decreased margins at the retail point of sales. The decision to locate Distribution centre are taken keeping the local tax laws under consideration. However, the operations inside these centres are not up to the standards leading to un-necessary expenses.

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Retail industry faces a big problem of forecasting the requirements of inventory because due to lack of proper IT implementation, the historical data is not available at appropriate time. Even if the data is available, there is not enough technical competency to analyse this data to derive meaningful insights. This results in increase in number of stock outs, increased mark downs, low inventory turns and high pilferage rate.

The way forward A typical supply chain looks like as shown above. In a supply chain, the role of retailer may vary. It may decide on only retailing and outsource everything else to a 3PLs or it may decide to carry out one or more of the activities, prior to its stage, itself and aim for backward integration.

In the near future there several steps that any retailer would have to take to ensure an effective supply chain for their business to grow such as: IT implementation to ensure that only as much is ordered as is required and not to store the inventory in the warehouses. The production should be accordingly scheduled to meet the customer demand. There should be sufficient mechanism to link all the different segments of the chain with each other and responsive to the demands of the segments. Parts of the value chain may be outsourced to a 3PL while a retailer can also look into backward integration for critical areas.

Since the supply chain is at an advanced level in the developed nations, it is tested various formats and then crystallized on certain set of options. Hence, in this case in particulars, Indian retailers need to look at the global retailers and adopt their best practices to suit Indian requirements. On a long term basis, there would be a need to build a flexible supply chain which would be capable of responding to changes, intrinsic or extrinsic changes, in demand, supply and technology. Further, such flexible supply chains would allow retailers to accommodate the illeffects of any dramatic events like natural calamities, terrorism, etc

Authored By : Aashish Sood ( pgp23183)

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Designing effective supply chain using RFID

Introduction: A retail supply chain may have multiple tiers of suppliers, manufacturers, and distributors. At each node in the supply chain, forecast (based on many factors such as seasonality, price, advertising and promotions) and actual sales from the next node are collected, and planning can be done on exactly what and how much to make and buy from the previous node. Traditional supply chain models tend to have extensive waste. That is why inventory reductions and cost savings are still the number one Return on Investment (ROI) objective of supply chain initiatives. In addition, a significant amount of corporate failure, or the erosion of market leadership has been because of poor SCM capabilities and a lack of attention to their supply chain processes and technologies.

A typical supply chain Efficient supply chains: Businesses strive to make their supply chains efficient by improving the information sharing throughout the supply chain. Demands are placed on manufacturers, distributors, and retailers along the supply chain to maximize efficiency, reduce cost, and provide the best value to the end-customer. Companies desire to evolve the capabilities of their supply chain to a demand-driven supply network. This can be done by having a highly integrated suite of supply chain systems that provide end-to-end visibility and as close to real-time information as possible. One system that can do the job is RFID technology. Radio Frequency Identification (RFID): After the bar code's quarter-century of domination, RFID tags, which consist of silicon chips and an antenna that can transmit data to a wireless receiver, are increasingly being used to track products in supply chains. RFID tags do not require line-of-sight for reading, are much faster than bar codes and can contain more information. It's very unlikely that RFID tags will completely replace Bar codes. Bar codes are inexpensive and effective for certain tasks, but according to experts RFID and bar codes will coexist for many years. If a company tracks assets within its boundaries, it can reuse the tags, which is cost-effective. But a system working in an open supply chain, has to be cheap because the company that puts the tag on a case or pallet is unlikely to be able to reuse it.

An EPC RFID tag used by Wal-Mart Developments: There are well-developed standards for low- and high-frequency RFID systems, but most companies want to use UHF which offers longer read rangeup to 20 feet

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under good conditions. Ultra High Frequency (UHF) technology is relatively new, and standards weren't established until recently. Electronic Product Code global developed a standard for UHF technology, but companies still had difficulty achieving consistently high read rates, because UHF radio waves are absorbed by liquids and bounce off metal. The performance improvement delivered by RFID tags based on EPC Gen 2 hardware was so good that few companies say read rates are an issue today. The next challenge was to find ways to use the RFID data to improve operations. In 2005, there was no software capable of taking raw RFID read data, cleansing it and displaying it in a way that it could be acted on. Early adopters spent much of 2006 either working internally or with software companies, such as OATSystems and T3Ci to figure out ways to filter, analyze and use the data to improve supply chain execution. One area many focused on was promotions, because tracking promotional displays could deliver a significant ROI. By the end of 2006, several companies, including Kimberly-Clark, Procter & Gamble had software in place to show precisely where promotional items were in the supply chain. There have been further developments in the area of worldwide RFID standards in Dec 2008.

A Wal-Mart Distribution Centre

Authored by : Shitij Chhabra( Pgp24051)

Supply Chain Applications: RFID-enabled supply chains can generate 10 to 100 times more information than traditional bar code technology.3 1. Applications involve tracking work in process, speeding up throughput in warehouses; reduce administrative error, labor costs associated with scanning bar codes, errors in shipping goods and overall inventory levels. 2. RFID benefits by tracking items and informing corporate databases of impending store shortages, delays in transport and other logistical information that is essential to optimize inventory management. 3. RFID has been hailed not only as a great tracking technology but also as a way to stop counterfeiters from sneaking fake products into the supply chain. Manufacturers of high-priced

http://www.cio.com/article/125261/Technology_Showdown_The_Bar_Code_Versus_RFID?source=artrel_top

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goods including pharma companies are attaching RFID tags at the item level and using the unique Electronic Product Code on each tag to authenticate the product.4 4. When applied to its internal supply chain, an enterprise will know the location of every raw material, intermediate and finished product and be able to manage its working capital very effectively through this increased visibility. When applied to the external supply chain, an enterprise will be able to predict and respond to external market forces faster than its competitors due to visibility in its value chain. 5. Pallets stacked with RFID labeled items can be easily read and re-read as they pass from location to location. Multiple read points feed item and location data to various Warehouse Management Systems (WMS) and ERP systems, providing an up-to-the-second picture of a product's location. Goods can be received in seconds and exceptions noted before the truck leaves the dock door. Routing instructions, even for mixed goods loads, can be seamlessly implemented and routinely checked to verify accuracy. 6. To secure inventory from theft RFID readers could be set to sound alarms or send notification if items are placed in unauthorized areas of the facility or removed from storage without prior approval. An Auto-ID Center study found consumer goods manufacturers would reduce inventory loss by an estimated 10% by implementing secure storage areas.

Future Applications to improve supply chain efficiency: 1. Projects are being undertaken to identify "payback areas," which are simply business processes including product life-cycle management, inventory management, loss prevention, dressing-room management and point of sale.5 2. RFID reduces the risk of human error by offering instant stock levels. It can be tied to backend systems, initiating orders automatically when stock starts to run low. If a product is reaching its expiry date, RFID could notify retailers to discount the product to accelerate sale. It means retailers have a better chance of selling stock, rather than dumping it, so the store runs more efficiently and profitably. 3. If a product is selling well at store X, but selling badly at store Y, RFID-powered inventory systems could initiate the transfer of the product from store Y to store X. 4. An RFID reader could scan a customers entire basket, and then present the total, greatly cutting costs and increasing speed at the checkout counter. 5. RFID tags on pallets, cylinders and other shipping containers can be automatically read at the dock door as they leave with an outgoing shipment. By matching it with specific shipment information in a database, manufacturers could build a record of what specific shipping containers were sent to each customer. This information could be used to measure cycle times, improve returns and aid in disputes with customers about lost or damaged assets.

4 5

http://www.rfidjournal.net/PDF_download/RFIDJ_ProductDev_May07.pdf http://itrc.uark.edu/94.asp?article=658

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