Summer Internship Project Report

OPTIMIZING SUPPLY CHAIN PERFORMANCE:

A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E

By

Anu Damodaran

AUD0260

MBA – General (Batch 2012-2014)

Under the supervision of

DR. Anita Mirchandani

Faculty of Management Sciences

Submitted In Partial Fulfillment of the Requirements for the Degree of Master of Business Administration - General

AMITY UNIVERSITY DUBAIP.O. BOX NO 345019

DECLARATION

Title of the Project Report: OPTIMIZING SUPPLY CHAIN PERFORMANCE: A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E.

I declare

a) That the work presented for assessment in this Summer Internship Report is my own,

that it has not previously been presented for another assessment and that my debts

(for words, data, arguments and ideas) have been appropriately acknowledged.

b) That the work conforms to the guidelines for style and presentation set out in the

relevant documentation.

Anu DamodaranPlace: Dubai AUD0260Date: MBA – General (Batch 2012-2014)

Amity University Dubai

ii

CERTIFICATE

I, Dr. Anita Mirchandani hereby certify that Ms. Anu Damodaran student of Master of

Business Administration – General at Amity University Dubai, has completed the

Summer Internship Project Report on “OPTIMIZING SUPPLY CHAIN

PERFORMANCE – A CASE STUDY OF LEADING FIRE AND SAFETY

MANUFACTURING COMPANY IN U.A.E.”, under my guidance.

Place: Dubai Dr. Anita MirchandaniDate: Faculty of Management Sciences

Amity University Dubai

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ACKNOWLEDGEMENT

I, Ms. Anu Damodaran, sincerely thank and acknowledge the valuable inputs and

guidance extended to me by Dr. Anita Mirchandani, Faculty of Management Sciences,

Amity University Dubai, toward successful completion of this summer internship project

report on “OPTIMIZING SUPPLY CHAIN PERFORMANCE – A CASE STUDY

OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E.”.

I extend my sincere thanks to Mr. Amin Bekai, Senior Management Team, Managers,

Staff and all Employees at Fire and Safety Manufacturing Company in U.A.E. for their

support and help during my summer internship which has proved to be very fruitful

toward completion of this report.

Thanking you,

Yours sincerely,

Ms. Anu DamodaranAUD0260MBA – General (Batch 2012-2014)Amity University Dubai

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TABLE OF CONTENTS

Sno TOPIC Page No

1 ABSTRACT 1

2 OBJECTIVE 2

3 CHAPTER – I 3

I.1 INTRODUCTION 3

i. COMPANY PROFILE 3

ii. GOALS 4I.2 CONCEPTS AND RELEVANT INFORMATION – SUPPLY CHAIN MANAGEMENT

5

i. BACKGROUND 5

ii. DEFINITION 5

iii. DECISION PHASES 6

iv. SUPPLY CHAIN 6

I.3 SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS 7

i. DEFINITION 7

ii. INDICATION 7

I.4 IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS 9

i. STRATEGIC FIT 9I.5 IMPACTS OF IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS

12

i. PERFORMANCE MEASUREMENT SYSTEMS 12

ii. PERFORMANCE MODEL - SCOR MODEL 14

iii. OPTIMIZATION 15I.6 CHALLENGES AND RISKS IN IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS

17

I.7 CORRESPONDING INFORMATION THAT IS RELEVANT TO SUPPLY CHAIN MANAGEMENT

18

i. INFORMATION TECHNOLOGY SYSTEMS 18

ii. INFORMATION AND COORDINATION 19

4 CHAPTER II 23

II.1 LITERATURE REVIEW 23

i. INTRODUCTION 23ii. FLOW COORDINATION, INFORMATION SHARING AND

VISIBILITY24

iii. PERFORMANCE MEASUREMENT 30

iv. CONCLUSION 32

v. RESEARCH PROBLEM AND QUESTIONS 32

5 CHAPTER III 34

III.1 RESEARCH METHODS AND PROCEDURES 34

i. PURPOSE 34v

ii. RESEARCH DESIGN 34

iii. METHODS OF DATA COLLECTION 34

iv. SAMPLING 34

v. PARTICIPANTS 34

vi. TYPE OF DATA COLLECTED 35

vii. DATA ANALYSIS 35

viii. FINDINGS 35

ix. LIMITATIONS 38

x. CHALLENGES 38

6 CHAPTER – IV 40

IV.1 ANALYSIS 40

i. TOWS ANALYSIS 40

IV.2 EXISTING SUPPLY CHAIN PROCESS FLOW CHART 42

i. AS-IS MODEL 42

ii. OUTCOMES FROM THE ANALYSIS OF THE AS-IS MODEL 42

iii. OPPORTUNITIES FOR SUPPLY CHAIN IMPROVEMENT 42

IV.3 TO-BE MODEL 43

i. FOUNDATION 43

ii. MATURITY MODEL 44

7 DISCUSSION 51

8 SUGGESTION 52

9 CONCLUSION 55

10APPENDIX A FOR AS-IS MODEL

56

11APPENDIX B FOR BEST PRACTICE MEASURES

57

12REFERENCES

60

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LIST OF TABLES

Sno. TABLE NAME Page No

Table 1COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS

8

Table 2IMPACT OF SUPPLY SOURCE CAPABILITY ON SUPPLY UNCERTAINTY

10

Table 3CLASSIFICATION OF PRODUCT INFORMATION (HUANG, LAU ET AL 2003)

27

Table 4 COMPARISON OF TRADITIONAL V.S. INNOVATIVE PMS 32

LIST OF FIGURES

Sno. FIGURE NAME Page No

Figure 1 THE RESPONSIVENESS SPECTRUM 10

Figure 2 FINDING THE ZONE OF STRATEGIC FIT 11

Figure 3 END-TO-END PROCESS CHAIN 24

Figure 4 SCPM3 ( SOURCE: RESEARCH DATA) 45

Figure 5 VALUE CHAIN PLANNING 47

Figure 6 SUPPLY CHAIN MANAGEMENT 47

Figure 7 THINKABLE CHANGES TO EXISTING PROCESS 48

Figure 8 EXAMPLE PROCESS FLOW 49

Figure 9 POSSIBLE VARIATION POINTS 50

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1

ABSTRACT

OPTIMIZING SUPPLY CHAIN PERFORMANCE – A CASE STUDY OF LEADING

FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E

The purpose of this study and report is to know some of the current developments in the

theory and practice of supply chain management and to highlight the challenges,

prospects and developments. This report is based on two month learning of supply chain

process from the internship in a Fire and Safety Manufacturing Company1, Dubai.

Around 8 highly qualified and experienced managers and 20 experienced staff across

various functions of the supply chain were interviewed and observed. Data has also been

collected from published papers, working papers and books. The report and case study

tells that supply chain management is still evolving in terms of both theory and practice.

The report finds range of key hurdles and supports to supply chain management and it

also includes an assessment of the main trends. The study reveals the significant gaps

between theory and practice of supply chain management. The main challenge is

identified as who could or who should manage the supply chain. An attempt has been

made to suggest practical steps to overcome the challenges. This report is original in

drawing a systematic study to assess current theory and current developments. The study

tries to show the way for managers to meet the present and future challenges in supply

chain management.

Keywords: Supply Chain Management

1 This will be referred as “The Company” in the following pages

2

OBJECTIVE

a) To understand supply chain efficiency and responsiveness

b) To know how supply chain efficiency and responsiveness can be improved

c) To recognize the impacts of improving supply chain efficiency and

responsiveness

d) To identify the challenges to improve supply chain efficiency and responsiveness

e) To spot the risks in implementing efficient and responsive supply chains

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CHAPTER - I

I.1 INTRODUCTION

This report is based on my two month summer internship as a mandatory requirement of

the MBA degree program. The internship was carried out in “The Company”, Dubai. As

a part of the training program I was deputed to the following departments/functional

areas of the supply chain at “The Company”:

Dispatch and delivery

Export

Maintenance

Projects

Inventory

Procurement and purchasing

Production

Planning

i. COMPANY PROFILE

The company is amongst the world’s largest manufacturers and full solution providers of

firefighting equipment, fire protection systems, fire alarm, security systems and safety

engineering under one roof. The company was established with a vision to be the world’s

most recognized fire Protection Company through quality and development to save lives

and properties. Headquartered in Dubai, UAE, the company has spanned the globe by

serving over 108 countries worldwide.

The company undertakes turnkey projects from design, supply, installation, testing and

commissioning of various systems like fire detection, fire alarm, fire suppression and fire

fighting systems. The company provides after sales service, spare parts and training. It

has a maintenance team that provides 24/7 service to ensure efficiency of the fire

protection systems for its clients.

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The company’s product range includes different kinds of fire extinguishers, custom-made

fire cabinets, heavy-duty fire hoses and reels, high capacity powerful fire pumps, mobile

fire fighting systems including Compressed Air Foam Systems (CAF), fire-rated doors,

fire detection and alarm systems, Closed Circuit Television (CCTV), ambulances,

extendable mobile hospitals, platform vehicles, rescue vehicles, fire trucks, and most

advanced Airport Rescue and fire fighting (ARFF) vehicle.

“Mission of the company is to empower customer to secure life, property and business

by delivering high quality and innovative fire protection solutions and knowledge using

world class manufacturing processes through best engineering practice and expand

worldwide”.

ii. GOALS

I was able to frame some learning goals during the internship with the guidance and

assistance from the industry guide.

To learn the basic concepts and relevant information about supply chain

management.

To understand the processes and functioning of supply chain areas in the

company.

To get experience and collect data in an environment that is new to me.

To identify the gaps in the existing process.

To review and analyse the existing process.

To propose changes that will improve the performance of existing process.

With guidance and assistance from the faculty guide, my goal was to use the skills and

knowledge that I gained at work, to organize and write the project report.

This report is organized as follows. Chapter I focus is on concepts and relevant

information that are related to supply chain management, supply chain efficiency and

responsiveness, improving supply chain efficiency and responsiveness, measuring

performance of supply chain, challenges and risks of supply chain management. Some

additional relevant information which is important to understand and to connect to the

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topic of supply chain management has also been highlighted in this chapter. Chapter II

emphasizes on the literature review and research problem. Chapters III and IV describes

the research methods and analysis. Final part of the report comes up with discussion,

suggestion and conclusion on the topic of study.

I.2 CONCEPTS AND RELEVANT INFORMATION - SUPPLY CHAIN

MANAGEMENT

i. BACKGROUND

Lot of confusion prevails about when and by whom the term "Supply Chain

Management" was first mentioned and used. There is some evidence about when it was

first seen in print. It was first seen in an article published in the German business

magazine "Wirtschaftswoche" in 1982. According to Partsch, in 1979/1980 a small

team of consultants in the Operations Group of Booz Allen & Hamilton in Europe

coined the phrase of "Supply Chain Management". A Pan-European Supply Chain

Strategy plus implementation project for the company Landis & Gyr (today integrated

into Siemens) in Zug, Switzerland was performed in the years 1980 - 1981 and later

published in the German business magazine "Wirtschaftswoche" in 1982. The term

“Supply Chain Management” SCM entered public domain when Keith Oliver, a

consultant at Booz Allen Hamilton, used it in an interview with the Financial Times in

1982.

ii. DEFINITION

APICS the Association for Operation Management defines supply chain management as:

“The design, planning, execution, control, and monitoring of supply chain activities

with the objective of creating net value, building a competitive infrastructure,

leveraging worldwide logistics, synchronizing supply with demand, and measuring

performance globally”

iii. DECISION PHASES

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Decision phases required for a successful supply chain management

Design or strategy

Planning

Operation

In the design or strategy phase, decisions about resource allocation, processes to be

performed at each stage, location and capacities of production and warehousing,

outsourcing, transportation modes and the type of information system to be utilized are

made.

The planning phase includes uncertainties in demand, exchange rates, competition etc. A

set of operating policies that govern short-term operations are defined as a result of the

planning phase.

The goal during the operation phase is to exploit the reduction of uncertainty so as to

optimize performance. In this phase, inventory or production is allocated to individual

orders, date is set against an order to be filled, pick lists are generated at warehouse,

allocation of order to shipping mode and shipment, setting delivery schedule of trucks

and placing replenishment orders take place.

iv. SUPPLY CHAIN

A supply chain means all parties which include suppliers, sales and marketing,

procurement, stores and purchase, transport and logistics, manufacturing, finance and

operations, human resources, information technology, quality control, distribution,

retailer, customer, customer care and service that are directly or indirectly involved in

fulfilling a customer request. Stages in a supply chain are connected by the flow of

information, products and funds in both directions. The objective of every supply chain

should be customer satisfaction. The strategic objective of every supply chain aims at

maximizing the overall shareholder value by maximizing return on investment made by

the investors. The fact is that the customer is the only source of revenue for any

supply chain.

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I.3 SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS

i. DEFINITION

A supply chain is considered to be efficient if the focus is on cost reduction and there is

no wastage of resources and also if there are no non-value added activities (Naylor, Naim

and Berry, 1999, p.108).

“The ability to react purposefully and within an appropriate time-scale to customer

demand or changes in the market place, to bring about or maintain competitive

advantage” can be defined as responsiveness (Holweg, 2005, p.605).

ii. INDICATION

As products go through their life cycle there is a change in demand characteristics and the

needs of the customer segments being served. As the product and production

technologies mature the supply characteristics also change.

Beginning stages of a product’s life cycle:

Uncertain demand

Unpredictable supply

Time is crucial to gaining sales

Product availability is crucial to capturing the market

Cost is a secondary consideration

In these situations responsiveness is the most important characteristics of the supply

chain.

Later stages of a product’s life cycle:

Demand becomes certain

Supply is predictable

Increase in competitive pressure

Price becomes a significant factor in customer choice

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In these situations efficiency is the most important characteristic of the supply chain.

TABLE 1 - COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY

CHAINS

Efficient supply chains Responsive supply chains

Primary goalSupply demand at lowest

cost

Respond quickly to

demand

Product design

strategy

Maximize performance at a

minimum product cost

Create modularity to allow

postponement of product

differentiation

Pricing strategy

Lower margins because

price is a prime customer

driver

Higher margins because

price is not a prime

customer driver

Manufacturing

strategy

Lower costs through high

utilization

Maintain capacity

flexibility to buffer against

demand/supply uncertainty

Inventory strategyMinimize inventory to

lower cost

Maintain buffer inventory

to deal with demand/supply

uncertainty

Lead time inventoryReduce, but not at the

expense of costs

Reduce aggressively even

if costs are significant

Supplier strategySelect based on cost and

quality

Select based on speed,

flexibility, reliability and

quality

I.4 IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS

i. STRATEGIC FIT

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Strategic fit refers to consistency between the customer priorities that the competitive

strategy hopes to satisfy and the supply chain capabilities that the supply chain strategy

aims to build.

There are three basic steps to achieving the strategic fit:

Understanding the customer and supply chain uncertainty

Understanding the supply chain capabilities

Restructure the supply chain or alter the competitive strategy

Uncertainty: Customer or demand uncertainty reflects the uncertainty of customer

demand for a product.

Demand uncertainty can be reduced by the following means:

Improve forecasting by using better market intelligence

Reduce replenishment lead time

Postponement of product differentiation to the point of sale in a multiproduct

setting

Tailored sourcing – low lead time but costly supplier as a backup for long lead

time but low cost supplier

TABLE 2 - IMPACT OF SUPPLY SOURCE CAPABILITY ON SUPPLY

UNCERTAINTY

Supply source capability Causes supply uncertainty to

Frequent breakdowns Increases

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Unpredictable and low yields Increases

Poor quality Increases

Limited supply capacity Increases

Inflexible supply capacity Increases

Evolving production process Increases

Source: Adapted from “Aligning Supply Chain Strategies with Product Uncertainties”

Hau L. Lee, California Management Review (Spring 2002), 105-19.

Capabilities: Supply chain capabilities can be understood by studying the supply

chain responsiveness.

Respond to wide ranges of quantities demanded

Meet short lead times

Handle a large variety of products

Build highly innovative products

Meet a high service level

Handle supply uncertainty

FIGURE 1 - THE RESPONSIVENESS SPECTRUM

Highly efficient Somewhat efficient Somewhat responsive Highly responsive

Highly efficient - Production scheduled weeks or months in advance with little variety or

flexibility

Somewhat efficient – Make to stock manufacturer with production lead time of several

weeks

Somewhat responsive – Delivering a large variety of products in a couple of weeks

Highly responsive – Changing merchandise mix by location and time of day

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Increasing implied uncertainty from supply sources and customers is served best by

increasing responsiveness from the supply chain.

FIGURE 2 - FINDING THE ZONE OF STRATEGIC FIT (RESTRUCTURE)

Responsive supply chain

Responsiveness spectrum

Zone of strategic fit

Efficient supply chain

Certain demand Implied uncertainty spectrum Uncertain demand

A given level of responsiveness can be achieved in a supply chain by adjusting the roles

of each stage of the supply chain.

It is important to remember that:

No supply chain strategy is always right

For a given competitive strategy there is a right supply chain strategy

Just like product life cycles, competitors can also change the setting. This calls for a

change in competitive strategy of the firm. When competitive strategy of the firm is

changed, the supply chain strategy must also be changed to maintain strategic fit. In this

context it is very crucial for managers to understand the impact of obstacles to achieve

strategic fit which is critical to a company’s ability to reap the optimum performance

from its supply chain.

The main obstacles are:

Increasing variety of products

Decreasing product life cycles

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Increasingly demanding customers

Fragmentation of supply chain ownership

Globalization

Difficulty in creating and executing new supply chain strategies

Currency conversions at different times

Data is unavailable

Data is available but in incompatible format

Different unit types of the data

Same information is recorded in different ways

Software specifications that rely on different internal data formats

Too much of unwanted and non-actionable raw data that misses the important

details

Data gaps especially of tracking between supply chain partners

I.5 IMPACTS OF IMPROVING SUPPLY CHAIN EFFICIENCY AND

RESPONSIVENESS

The least expensive and least time-consuming activity that will show the improvement in

supply chain operations is by identifying, developing and implementing performance

measurement systems and performance metrics.

i. PERFORMANCE MEASUREMENT SYSTEMS

To develop and maintain a supply chain performance measurement is one of the main

challenges faced in supply chains. Supply chains most often consist of different

departments, each reporting to different supervisors and managers and they in turn having

its own top management. If this is the nature of supply chain, then metrics, measurement

and improvement system should be based on transparency to achieve supply chain

performance and profitability.

Some of the influential performance measurement systems are:

Balanced Scorecard Model (BSC)

Performance prism (PPR)

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Productivity Measurement and Enhancement System (ProMES)

BSC model was created by Kaplan and Norton (1992) of the Harvard Business School.

This model complements the traditional financial performance measures with key

performance indicators (KPIs) in non-financial areas.

The building blocks of BSC are:

Financial – ROI, ROCE, EVA

Customer – Customer satisfaction and market share

Internal process – Processes that have greatest impact on customer satisfaction

and financial performance

Learning and growth – long term improvement through people, systems and

organizational procedures

PPR is a three dimensional model in the shape of a prism developed by Neely and

Adams (2000). This model looks at five distinct yet logically interlinked performance

perspectives.

They are:

Stakeholder satisfaction – which are the key stakeholders and what are their wants

and needs?

Strategies – what strategies are required to satisfy the wants and needs of the

identified stakeholders?

Processes – what processes are required to execute these strategies?

Capabilities – what are the capabilities in terms of people, practices, technology

and infrastructure required to operate and enhance these processes?

Stakeholder contribution – what is the contribution needed from the key

stakeholders if we want to maintain and develop these capabilities?

ProMES was developed by Pritchard (1990). This system is built around the theory of

work behaviour and motivational forces. Motivational force of a person according to

Pritchard is the result of a person’s acts, products, evaluations, outcomes and need

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satisfaction. ProMES is a bottom up approach where people are really involved in

designing the system. But the disadvantage is that the level of contribution is already set

and therefore it could result in non-alignment of PMS of business units with company’s

PMS.

ii. PERFORMANCE MODEL - SCOR MODEL

The Swedish firm IKEA developed a performance model called “the product

management model”. This model consists of measures within five different areas:

Product range

Cost

Quality

Availability

Service

A list of commonly used metrics that are endorsed by the SCOR model:

Delivery in full

Delivery on time

Delivery in specification

Fill rate for stock

Lead time

Production flexibility

Total cost

Realized margin

Warranty costs

Return processing costs

A company should focus on the metrics which reflects its customer needs and market

realities rather than focusing on best practice norms in the industry. The challenge is to

integrate functional performance measures to overall performance of the supply chain.

The management’s attention and willingness is required to share information with other

supply chain members. It must be understood that working together is the only way that

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organizations can better satisfy customer requirements for quality, cost, product and

service which will enable optimizing the supply chain performance.

iii. OPTIMIZATION

Optimization assures to develop a company’s supply chain performance in many

ways:

Reduced supply chain costs

Improved product margins

Reduced inventories

Increased manufacturing throughput

Enhanced return on assets

Some rules for supply chain optimization

Quantify and measure objectives

Required processes should be represented by models

Consider variability

Data should be accurate, well-timed and complete

Fully automated data transfer should be integrated

Solutions should facilitate execution, management and control

Algorithms should be capable to exploit individual problem structure

People expertise in domain and technology is required to support the models, data

and optimization engines

Process should have the ability to continuously improve and support optimization

Considering the total cost of technology, people and operations ROI should be

provable

Companies will be at a significant disadvantage if they can’t tell in real time what is

happening in their supply chains.

They will be:

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Unable to mitigate the bullwhip effect since they can’t recognize the disruptions

and anomalies

Forced to react to complex situations since they can’t recognize the full extent of

adverse effects

Companies can enjoy the following competitive advantages if they synchronize

supply chain and have real time data.

They are:

Minimize the bullwhip effect

Easier planning

Visibility to partner systems

Visibility allows collaboration and cooperation between partners

Back end processing, modifications and updates can happen as decisions are

being made

Changes and expansion in supply chain software

Successful optimization of supply chains requires:

Technology that utilizes enterprise assets to synchronize data among various

operating units and trading partners in the supply chain

High speed, high performance, scalable, reliable data transfer and message

delivery

Strong security and governance quality that does not interfere with real time data

transfer

Solution that must be able to plug in all major supply chain management solutions

like CRM, SRM, and ERP manufacturing package, logistic pipelines, carrier data

systems and transportation planning systems

Solution that must be capable of integrating any legacy on custom planning,

manufacturing, distribution and accounting systems in to the supply chain

ecosystem

Business process automation, standardization, exception monitoring and reporting

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Complex event processing technology for pattern recognition by measuring

against historical norms or metrics

Intelligent data presentation and visualization capabilities in concise and

actionable form in dashboard or in a portal, alarms, alerts, reports and data screens

by use of KPIs and scorecards

Integration of these displays with analytics packages for on the spot analysis

I.6 CHALLENGES AND RISKS IN IMPROVING SUPPLY CHAIN EFFICIENCY

AND RESPONSIVENESS

Reliable end to end supply and demand planning has become increasingly challenging

because of erratic macroeconomic cycles of growth, contraction and recovery. Customers

are tightening their requirements in terms of throughput time and perfect order delivery

while simultaneously demanding cost reductions especially in B2B business

relationships. Supply chain executives face a range of challenges such as profitability,

cost management, supply chain flexibility, competitive pressures, customer requirements,

volatility, skills gaps and sustainability.

Top supply chain leaders have used these three drivers to cope with these challenges.

They are:

Perfect order delivery

Cost reductions

Supply chain flexibility

Four distinct categories of supply chain risk

Macro-economic risks – Businesses are able to access less expensive labor and materials

and opening up new markets as a result of globalization. But globalization also increases

supply chain complexity and magnifies the impact of supply chain disruptions caused by

natural disasters, political turmoil, piracy and regional economic crisis.

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Extended value chain risks – On one hand outsourcing has improved efficiency and

allowed businesses to focus more attention on their core competencies but on the other

hand it has also made operations more complex and exposed to third-party risks.

Operational risks – Although lean manufacturing, just-in-time inventory and capacity

rationalization have increased supply chain efficiency and responsiveness but by reducing

the slack in the network, and having reduced the error margin they still have amplified

the disruptive potential of whatever problems happen to arise.

Functional risks – are risks which are related to functions that support supply chain

activities, such as Finance and Accounts, Human resources, Legal and Information

Technology. Any disruption or breach in the critical applications and systems by which

the supply chains are enabled and accumulated can have an immediate impact on the

customer experience.

I.7 CORRESPONDING INFORMATION THAT IS RELEVANT TO SUPPLY

CHAIN MANAGEMENT

i. INFORMATION TECHNOLOGY SYSTEMS

Sharing the data to what is truly required can decrease investment in IT and can improve

the chances of successful collaboration. The task of supply and demand management is

often divided into different functions in most companies. Sales and marketing typically

manage demand while operations manage supply. It is important that these functions are

coordinated to plan for predictable viability together. During the process of getting new

IT systems running, a firm is forced to move from the old processes it used in its

operations in its IT systems. Problems can be found in both business processes and

technical issues. Most often, because top management is not actively involved in making

the transition it is difficult to get the entire organization on board with the changes

brought about by a new IT system. The new system may be unable to perform as

promised and may even perform worse than the old system if a firm moves to a new

system without proper integration.

Three points to keep in mind while implementing IT systems:

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Install new IT systems in an incremental manner

Firms should run duplicate systems to make sure the new system is performing

well.

Level of complexity should be only that one needs

Operational mitigation strategies include:

Data backup systems

Security software products

ii. INFORMATION AND COORDINATION

Information must have the following characteristics for making supply chain

decisions useful:

Information must be directionally accurate

Information must be easily accessible

Information must be important and meaningful

Supply chain coordination requires that each stage of the supply chain should take in to

account the impact its actions have on other stages. When different stages of the supply

chain have different objectives or when there is delay or distortion of information

between stages then a lack of supply chain coordination occurs.

In order to achieve coordination of the supply chain, managers must monitor the

following:

Align goals and incentives across functions

Improve information accuracy by sharing POS data, collaborate forecasting and

planning, design a single stage control of replenishment

Improve operational performance by reducing lot sizes and replenishment lead

times

Stabilize pricing by moving from lot size to volume based or rate of purchase

quantity discounts (If manufacturer does not incur a very high fixed cost per

order, it is better for the supply chain to have volume-based discounts)

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Build cooperation, trust and strategic partnerships within the supply chain

Quantify the bullwhip effect

Get top management commitment for coordination

Focus on communication among stages of supply chain

Efficient use of technology to improve visibility and connectivity in the supply

chain

Share benefits of coordination equally among stages and partners of supply chain

The key obstacles which managers should identify to help achieve coordination:

Incentive obstacles

Information processing obstacles

Operational obstacles

Pricing obstacles

Behavioural obstacles

Incentive Obstacles: When incentives are offered to different participants or stages in a

supply chain it leads to actions which increases variability and reduces total supply chain

profits. These situations give rise to incentive obstacles.

Information Processing Obstacles: occur when demand information is delayed or

distorted between various stages of the supply chain, leading to high variability in orders

within the supply chain. For instance, forecasting that is based on orders and not

customer demand and that lacks information sharing.

Operational Obstacles: When actions taken in the course of placing and filling orders

lead to an increase in variability it is called as operational obstacles. E.g. ordering in large

lots, large replenishment lead times, rationing and shortage gaming. Variability of orders

is magnified up the supply chain whenever a firm places orders in lot sizes that are much

larger than the lot sizes in which demand arises. A retailer will incorporate an anticipated

growth over two weeks when placing the order if he has misinterpreted random increase

in demand as a growth trend and at the same time faces a lead time of two weeks.

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The rationing scheme is a game in which retailers try to increase the size of their orders

to increase the amount supplied to them. A manufacturer who uses orders to forecast

future demand will interpret the increase in orders as an increase in demand even though

customer demand is unchanged. The manufacturer will therefore respond by building

enough capacity to be able to fill all orders received. Once all orders return to normal

level the manufacturer is left with a surplus of product and capacity.

Pricing Obstacles: When an increase in variability of orders placed occurs as a result of

pricing policies. E.g. lot size based quantity discounts and trade promotion discounts.

Behavioural Obstacles: Problems related to the way in which supply chain is structured

and the way communication occurs between different stages are caused by behavioural

obstacles.

Some of the behavioural obstacles are:

Each stage views its action closely and separately

Each stage is unable to see the impact of its actions on the other stages

Stages of supply chain react to their current situations

Stages in supply chain do not try to identify the root causes of a situation

Different stages of supply chain blame each other for fluctuations rather than

working together as partners

Stages of supply chain do not learn from their local actions because the

consequences of their action occur elsewhere in the supply chain

Supply chain partners become opportunistic when there is lack of trust and it

results in duplication of efforts and lack of information sharing

All the above happens at the expense of supply chain performance

22

CHAPTER - II

II.1 LITERATURE REVIEW

i. INTRODUCTION

The literature review shares limited insights and evidences that are fundamentally allied

to the research problem and questions that are summarized and proposed in the last part

of this section.

23

To successfully satisfy the needs and demands of customers means; the extent to which

the business can make the customers happy and delighted with their products and service.

Increasingly, companies today are realizing the financial gains of optimizing the supply

chain performance by integrating with suppliers and customers. The economic

uncertainty and global competition in today’s market scenario calls for a serious look into

the optimization of the supply chain performance.

It is a fact that there is a lack of availability of useful timely data, information sharing and

poor visibility across the supply chain which is indispensable for turning the supply chain

into a competitive benefit. It is also evident that there is a lack of systems to measure

performance and benchmark supply chains which results in failure to meet customer

expectations and satisfaction and optimization of a company’s performance. These are

some of the main conflicts that today’s Supply Chain Managers face in many of the

enterprises worldwide.

The objective of optimizing supply chain performance can be achieved when there is

coordination wholly at all stage of supply chain which is mainly based on information

sharing. The performance of any supply chain is often determined by three logistical

drivers which are facilities, inventory, transportation and the three cross-functional

drivers that are information, sourcing and pricing. The evolution of new forms of

organizations such as virtual enterprises, global manufacturing and logistics places flow

coordination and information sharing of supply chains as strategically the most important

element in managing the performance of any business.

FIGURE 3 – END-TO-END PROCESS CHAIN

24

ii. FLOW COORDINATION, INFORMATION SHARING AND VISIBILITY

A research conducted by Anand and Mendelson (1997) considers four coordination

structures:

(1) Centralized, using all data but none of the local knowledge;

(2) Decentralized, each market using all data and local knowledge;

(3) Fully distributed, all data are shared so that each branch can make decisions based on

its own knowledge and all available data in the system;

(4) No information, only local knowledge is used in decentralized decision environment.

Anand and Mendelson (1997) studied the impact of these coordination structures on the

performance of a firm. They found that fully distributed coordination structure does

better than decentralized and centralized system. The performance of decentralized

system dominates in a number of cases than the superior coordination of the centralized

system. The centralized system does better where local knowledge is of little value for a

small number of markets

25

Lee et al. (1997) suggested channel coordination, operational efficiency and information

sharing to improve the overall supply chain performance. Current research often

emphasizes a single coordination mode as the act of managing specific objects such as

interdependent processes, information and knowledge. Little attention has been given to

exposing different coordination modes and their interactions. An extensive study

conducted by Chen (1998) reveals that the costs of centralized information system are on

lower than the decentralized information system.

Cachon and Fisher (2000) study and compare two information-technology-related

sources of supply chain improvement and the value of sharing real-time demand

information. Results revealed that full information sharing reduces system. The authors

conclude that while information sharing reduces costs, flowing goods through supply

chain faster and in smaller batches gives much greater savings.

Repeated emphasis is given in literature to the increased importance of information

systems to support supply chain integration (Pant et al 2003, Bendoly and Kaefer 2004,

Gunasekaran et al 2004, Gunasekaran and Ngai 2004, Gunasekaran et al 2005, Kelle and

Akbulut 2005, Akyuz and Rehan 2009). The virtual integration of the entire supply chain

to facilitate the coordination among different functions is done by e-supply chain

management. (Gimenez and Lourenco 2004) refer to the impact that internet has on the

integration of key business processes that provide products, services, information and add

value for customers and other stakeholders from end user to original suppliers as e-SCM.

Lee and Whang 2000, Xu, Doug et al. 2001, Yu, Yan et al. 2001, have found great

influences on supply chain performance, particularly in reducing the bullwhip effect as a

result information sharing. Lee 2000, Mentzer 2004 says for companies to be more

responsive to customer’s demands there should be better management of information.

Cooper et al (1997) suggest that partners which companies want to be closely integrated

need to be carefully determined. Raghunatan (2003) found that when demands amongst

retailers are independent, the supplier will include more sharing partners because the

value of information sharing will significantly increase.

26

Lau et al (2002) examined four combinations of sharing demand and inventory levels.

The highest total supply chain cost when compared to no information sharing at all

occurred when demand and inventory levels were shared only between retailers and

distributors. In full sharing mode the gain was highest. It is noted that information sharing

did not benefit all firms.

Huang and Gangopadhyay (2004) studied and analysed three scenarios in a four stage

supply chain comprising of customers, retailers, distributors, wholesalers and

manufacturers.

The three scenarios are:

1) No information sharing

2) Partial information sharing

3) Full information sharing

Decreased inventory levels at wholesalers were seen with higher degree of information

sharing. When demand is volatile the benefits are more.

Smaros et al (2003) studied a three level supply chain in which the manufacturer used a

combination of order data from non-vendor managed inventory customers and sales data

from vendor managed inventory (VMI) customers in its production planning. The study

showed that for products with low replenishment frequency, manufacturers benefit from

even a little increase of involvement and information sharing. Mentzer (2004) states that

all supply chain partners cannot be included in information sharing.

Huang et al (2003) classified product information into six categories pertaining to

product, process, resource, inventory, and order and planning.

27

TABLE 3 - CLASSIFICATION OF PRODUCT INFORMATION (HUANG, LAU

ET AL 2003)

Category Product information

Product Product structure

Process

Material lead time

Lead time variance

Order transfer lead time

Process cost

Quality

Shipment

Set-up cost

Inventory

Inventory level

Holding cost

Backlog cost

Service level

ResourceCapacity

Capacity variance

Order

Demand

Demand variance

Order batch size

Order due date

Demand correlation

Planning

Demand forecast

Order schedule

Forecasting model

Time fence

Lee, So and Tang (2000) found that when demand correlation is high over time, highly

variable, or the lead-time is long then information sharing has more value. By sharing

forecasts of demand of products that have high demand variability significant benefits

28

can be achieved (Angulo, Natchmann et al 2004). The relationship between trading

partners influences the selection of the type of shared information. Part inventories can be

reduced without risking stock-outs by sharing production schedules with part suppliers.

Lee and Whang (2000) showed that new product development can be facilitated by

sharing information and close coordination between retailers and manufacturers. More

research is needed to identify what information should be shared with supply chain

partners that give most benefits.

Two main attributes of information identified by researchers are timeliness and

completeness of information. Bourland et al (1996) found that sharing demand

information daily can decrease supplier’s expected inventory cost especially if demand

variability is high. Companies might not want to share detail data with partners as they

fear that it might weaken a company’s negotiating position by leaking of data to their

competitors. Studies show that when trading partners are given incentives in various

forms such as lower wholesale prices, flexible payment terms etc. companies gain a lot

from sharing information (Bourland, Powell et al 1996; Yu, Yan et al 2001; Mitra and

Chatterjee 2004). Further investigation is needed to know how to share the benefits of

information sharing amongst partners.

Kulp et al (2004) did a survey and found that highest profit margin companies exchange

information and also continue it with close collaboration. Work realignment can be

effective once information sharing is in place. Work realignment is basically

redistribution of physical activities among members of supply chain. A cultural shift in

organization to treat supply chain partners as parts of organization is needed for work

realignment. When past behaviours such as functional thinking silos still persist with

people in the organization, significant benefits from information sharing will not happen.

People can impede or facilitate collaboration is argued by Mentzer (2004).

‘The bullwhip effect” is the phenomenon in which information is distorted in such a way

that it differs greatly from the end customer’s demand (Lee, H.L., V. Padmanabhan, and

S. Whang 1997). Better demand forecasting and more accurate production planning can

29

be achieved by sharing the actual sales data and inventory information with upstream

partners in the demand-supply network leads to (Lee, H.L., V. Padmanabhan, and S.

Whang 1997). Researchers agree that the performance of supply chain can be improved

by increased visibility (Cachon G.P. and M. Fisher, 2000, Lee, H.L. and S. Whang, 2000,

Grean, M. and M.J. Shaw, 2000, Kulp, Susan Cohen, Lee, Hau L., Ofek, Elie, 2004,

Raghunathan S.2003, Yu, Z., H. Yan, T.C.E. Cheng, 2001). They have proved the

benefits as improved inventory management, higher sales and better understanding of

demand.

“The sharing of all relevant information between supply chain partners, also over

echelons in the supply chain” is defined as end-to-end visibility (Lakervi, Helena, 2003).

As none of the supply chain partners have control over data, Points of sale (POS) data

represent independent demand. Data gathered from POS should be used as a basis to

forecast. is that, As items may not be scanned in the system on an individual level, or

returns may be handled improperly, the information collected may be inaccurate which is

the downside of using POS data (Fisher, M.L., A. Raman, and A.S.McClelland, 2000).

In many cases, is more important to suppliers give more importance to the visibility to

demand plans and production plans than the actual demand from downstream. The

bullwhip effect can be reduced but not completely eliminated by centralizing demand

information (Disney, S.M. and D.R. Towill 2003a, Disney, S.M. and D.R. Towill 2003b).

Frequent communication can help the supplier to plan its operations better as the

responsibility for replenishments is shifted from retailer to supplier (Kaipia, R., J.

Holmström, and K. Tanskanen, 2002). When compared to other information sharing

levels demand information-sharing can make it possible to reduce costs by 1-35% and

decrease inventory levels by 53% (Gavirneni, S., R. Kapuscinski, and S. Tayur 1999).

Forecast information-sharing is valuable to retailer and demand information-sharing is

not that beneficial if variance in demand data is high (Mishra, B.K., S. Raghunathan, and

X. Yue 2001). Information-sharing becomes more valuable with high production capacity

tightnesss (Zhao, X., Xie, J. and W.J. Zhang 2002). Christopher and Lee claim that

supply chain synchronization is possible by improved visibility which increases

30

confidence and reduces uncertainty in supply chain. When lead times are long visibility

to plans are especially important.

iii. PERFORMANCE MEASUREMENT

The measurement of performance in a supply chain is vital. Gunasekaran and Kobu

(2007) list the following as the purpose of a performance measurement system:

Better process understanding Identification of bottlenecks Identifying waste Identifying problems Identifying opportunities for improvement Identifying if customer needs are met Identifying success Facilitation of open and transparent communication and co-operation Enabling progress Tracking progress

Performance measurement is “measuring actual results which is vital in strategy

formulation and communication and in forming diagnostic control mechanisms”

(Wouters 2009). A US case-based study conducted by Swafford et al (2008) reveals the

“domino effect” among IT integration, supply chain flexibility, supply chain agility and

competitive business performance. Domino effect means a small disruption anywhere in

the supply chain affects the entire chain. Inventory, cycle time and financials are the

performance measures discussed by Martin and Patterson (2009). Gunasekaran and Kobu

(2007) support and highlight the confusion to classification of metrics in literature and

lack of complete coverage of all performance measures. The need of a new performance

measurement and costing system is a direct justification of their work.

Combining economic value added (EVA), the balanced scorecard (BS) and activity based

costing (ABC) is suggested as an integrated approach for measuring supply chain

performance, by Yao and Lin (2006). Bernardes and Zsidisin (2008) focussed their

investigation on the concept of embeddedness and network scanning in relation of

strategic supply chain to performance. Their work is supported by rigorous statistical

31

analysis involving a survey-based study made in US manufacturing. Embeddedness is

characterized by trust, open communication and joint problem solving. Network scanning

is related to scanning of internal and external business environment.

McCormack et al (2008) conducted a study that compares traditional versus innovative

performance measurement systems. The base for this study is the supply chain operations

reference (SCOR) model (plan, source, make, deliver) and the business process

orientation maturity model of McCormack and Lockamy (2004). All research in the area

of process maturity and performance relation provides clear evidence that there is still

search for models which have direct correlation with performance. The failure to develop

the performance measures and metrics needed to fully integrate supply chains to

maximize effectiveness and efficiency in many companies in today’s competitive age has

been highlighted by Gunasekaran et al (2004).

The main problems in performance management have been pointed out by Gunasekaran

et al (2004) and Gunasekaran and Kobu (2007). They are:

Being too much inward looking

Strategy and the measurement connect failure

Large number of metrics

Biased focus on financial metrics

Lack of balanced framework (some concentrating on financials and others

concentrating on operational measures)

Performance measurement and metrics that are incomplete and inconsistent

Cai et al (2008) state that these measurement systems cannot provide for a definite cause-

effect relationship among numerous and hierarchical individual key performance

indicators (KPIs). McCormack et al (2008) compare the traditional and innovative

performance measurement (PMS).

32

TABLE 4 - COMPARISON OF TRADITIONAL V.S. INNOVATIVE PMS

Traditional PMs Innovative PMS

Based on cost/efficiency Based on value

Trade-off between performances Compatibility of performances

Profit oriented Client oriented

Short term orientation Long term orientation

Individual metrics prevail Team metrics prevail

Functional metrics prevail Transversal (HR and training) metrics prevail

Comparison with the standard Monitoring of improvement

Aimed at evaluation Aimed at evaluation and involvement

Source: McCormack et al (2008)

The literature items mentioned above clearly shows that significant changes are required

over traditional performance measurement and the existence of deficiencies in the current

performance measurement systems

iv. CONCLUSION

The above studies indicate that impact of coordination structures, information sharing and

visibility at all levels and partners and performance measurement of supply chain is a

very profitable area for further research. There is no single model and a standard set of

metrics which are tested and validated across different industries. Though many

investigations reveal the significant benefits of flow coordination, information sharing

and visibility in supply chains lot many questions need to be answered. All the research is

mainly theoretical and typically does not address the problems of implementing

information sharing and performance measurements in practice.

v. RESEARCH PROBLEM AND RESEARCH QUESTIONS

The research problem in question is of delivering products to customers as and when

they desire and demand at the lowest total cost and highest profit.

33

Based on the review of literature presented in the above section the following research

questions can be probed:

What is the impact of coordination structures on performance of a firm?

What are the information technology related sources of supply that helps in

lowering costs?

Should information be shared with all or some select partners?

What information should be shared and how often and when should it be done?

Should detail information be shared or must be censored?

How the benefits of sharing information amongst partners can be shared?

What are the main barriers of implementation amongst partners?

How to implement information sharing?

How to measure the suitability and performance of information technology in

supply chain management?

What are the performance measurement tools and metrics in this era?

How can the performance measures be tested and validated?

How to suggest models to enable benchmarking supply chains?

The research questions should be considered and reconsidered time and again in a world

that is currently dominated by globalization, uncertainties, huge competition, customer

expectation and satisfaction.

34

CHAPTER - III

III.1 RESEARCH METHODS AND PROCEDURES

i. PURPOSE

To identify the best way to learn about the supply chain management process

To gather information about the existing process

To establish a factual base for analysis centered on the understanding from the information gathered

To know how the process can be evaluated

To find a process improvement system based on a model

ii. RESEARCH DESIGN

Case study – Qualitative and Exploratory

iii. METHODS OF DATA COLLECTION

Face to face interviews (unstructured)

Observation

Assessment questionnaire for review

Document review

Literature review

Book review

iv. SAMPLING

Judgment

Snowball

Convenience

v. PARTICIPANTS

Managers

Coordinators

Section in charges

vi. TYPE OF DATA COLLECTED

35

Attribute type

vii. DATA ANALYSIS

Data reduction

Data display

Conclusion

viii. FINDINGS

Many functional areas do not make any forecasts

Few functional areas make their own forecast

Forecasts are made based on judgment and experience

Functional areas are unable to give a correct delivery date for delivery

Deliveries are managed in response to call of urgency from customer

Numerous iterations and modifications occur at the stage of sales order

Too many item codes are there for products, which causes difficulty and

confusion in identification

Item terminology is different at customer level, manufacturer level and supplier

level

All new products do not have new item codes

Non-moving items are still in the system which adds to the confusion at the stage

of sales order

No category for substitute items in the system

What is a nonstandard item – not defined

When does it cease to be a nonstandard item – not clear

When does a standard item cease to be moving item – not monitored

Cancellation of sales orders are not informed to the other functional areas in the

chain

Delayed, duplicated and avoidable manual - control approvals have been observed

Lack of coordination and integration between functions and partners in the

supply chain

System visibility and integration is inadequate

Converting option direct from purchase order to sales order is not there for all

customers

36

Too many emails, phone calls and personal visits between functional areas have

been noticed

Long supplier lead times

Raw material shortage

Packing material shortage

Occasional stock out of few standard items

Inventory holding of non-moving items is seen

No demand planning

No production planning and scheduling

Details of work order not visible in system for sales and operations

No time frame for each function

Information sharing at stages and between partners is inadequate

Catalogues are not updated

Catalogues do not have item codes

Prior information about change in government regulations, obsolete brand is

unavailable

Material returns are relatively more

Reasons for material returns are replacement, item not required, changes in

drawing, unapproved items and balance items after project completion

Return items that are non-moving continue to be in warehouse

Time lag between delivered status in the system to actual shipment is noticed

Delays in custom clearance especially for Kingdom of Saudi Arabia (KSA)

exports

There are conditions of time delay between pick status and invoice

There are cases of time delay between pick and delivery status of sales order

Manual copies of approved slips and orders are needed in most cases in spite of

ERP system in place

100% Quality check (QC) testing of few products is essential yet time consuming

Most of the customers do not prefer partial deliveries, even when few items are

available when approved sales order is ready

Bill of quantity is not incorporated through system

37

No partnering with customers

No collaborative planning with suppliers

Linear sequence of processing is too slow

Waiting times between chain segments are excessive

Existence of non-value added activities

Slow delivery of paper documents

Repeat process activities due to wrong shipments, poor quality

Batching; accumulate work orders between supply chain processes to get

economies of scale; save on delivery)

Learn about delays after they occur, or learn too late

Excessive administrative controls such as approvals (signatures

Lack of information, or too slow flow

Lack of synchronization of moving materials

Poor coordination, cooperation and communication

Delays in shipments from warehouses

Redundancies in the supply chain. Too many purchasing orders, too many

handling and packaging

Obsolescence of parts and components that stays too long in storage

Separate units

Too many order management employees

Decentralized supply chain departments

Data inadequacies

Order communication cycle time is long

Order processing cycle time is long

Order routing is inadequate

Integrated firm wide data base is not there

No fully automated order management system

Component order selection is not there

Order queuing is not there

Order inaccuracy

Order cancellation

38

No delivery date guarantee

Customer service levels is poor

Back orders are many

Split orders are few

Sample orders are very few

Partial delivery is limited

Changes to sales order are more

Double check of sales order by superior or co-worker is not there

ix. LIMITATIONS

Short time frame

Busy managers and staff

Restrictions on data sharing

Sample size

Single case study

x. CHALLENGES

One/Multiple supplier/s?

Stocking locations, many, where?

Lead times, many?

Supply, variable?

Demand, variable?

Centralized or decentralized?

Order – daily, weekly, monthly, quarterly?

Forecasting method?

Classifying products?

Customer segments?

Service levels?

Planning – daily, weekly, monthly, quarterly?

Buffer stocks?

Obsolete stocks?

39

Performance measures?

40

CHAPTER - IV

IV.1 ANALYSIS

i. TOWS ANALYSIS

Internal strengths

Wide scope of business

Market leader in Gulf and MENA region

No immediate and strong competitor

Broad product range

Global business Potential of

manufacturing Production units

abroad Quality products Leadership focused

on improvement Dedicated and

excellent engineers and technical experts

Highly motivated staff

Training and development programs

ERP application Huge potential with

the introduction of Value Chain Planning

Internal weaknesses

No standard operating procedures

Unclear roles and responsibilities

Supply chain activities and functions in silos

Poor visibility No information

sharing Poor flow

coordination Ineffective use of

ERP systems Unnecessary non

value added tasks Incomplete and

inaccurate data Supply chain

disruptions Poor integration of

customer, manufacturer and supplier

Improper product and sub-product classification

No planning No performance

measurement system

Resistance to change

Under-utilized CRM and manufacturing

41

software modules. Inadequate plan on

segmentation, targeting and positioning of market

External opportunities

New and emerging markets

Growing affluent market demands

Present economic recovery and boom period in the geographic region

SO: (maxi-maxi)

Designing new products

Demand planning Stringent supplier

evaluation and selection

Sales force training

WO: (mini-maxi)

Change management

Align planning with strategy

Educate employees on supply chain

Re-engineer processes for effective implementation and monitoring of supply chain system

External threats

Economic and political instability

Government regulations

Trade regulations Customs

regulations Competition Substitute

products New products

ST: (maxi-mini)

Lean manufacturing Reduce inventory

levels Reduce order

delivery time Reduce supplier

lead time Market intelligence

WT: (mini-mini)

Overcome the weakness and threats by effective planning

KPIs for entire supply chain

Monitor and measure supply chain performance

42

IV.2 EXISTING SUPPLY CHAIN PROCESS FLOWCHART

i. AS-IS MODEL

Business process is a collection of related, structured activities or tasks that produce a

specific service or product for a particular customer or customers which is usually

visualized with a flowchart or process matrix. As part of the analysis of the supply chain

operations in the company an AS-IS Model which was derived is depicted in the

flowchart diagram in the appendix section of this report.

*Refer Appendix. A AS-IS Model

ii. OUTCOMES FROM THE ANALYSIS OF THE AS-IS MODEL

Lack of communication

Lack of planning

Lack of visibility

Lack of integration

Lack of coordination

Lack of transparency

Lack of information sharing

Lack of structured roles and responsibilities

Lack of Performance Measurement Systems

Lack of control and monitoring

Lack of the ability to see supply chain as a whole

Lack of proper utilization of available supply chain software modules

Complex and challenging supply chain

iii. OPPORTUNITIES FOR SUPPLY CHAIN IMPROVEMENT

Manufacturing processes

Warehousing operation

Packaging and delivery

Material inspection/receiving

Inbound and outbound transportation

43

Reverse logistics (returns)

Inventory management and control

Vendor management program

Customer order processing

Invoicing, auditing and other accounting activities

Collaboration procedures with partners

Employee training and deployment

Labour scheduling

Use of teams and empowerment of employees

Automation of processes

Use of software for facilitating all the above

IV.3 TO BE MODEL

i. FOUNDATION

Before proposing a model it will be wise to have an understanding of the process models

for management of supply chains. It must be understood that all processes have

developmental stages or life cycles. These can be defined, measured and controlled over

time. Lockamy and McCormack, 2004; Poirier and Quinn, 2004; McCormack et al., 2008

point out that a higher level of maturity in any business process will result in:

Accurate forecast of goals, costs, performance

Effectiveness to achieve and improve the goals, costs and performance

Better control of results

The maturity model has been shown to be very similar to management approach concepts

like the Business Process Reengineering (BPR) (Chan and Qi, 2003; Gunasekaran et al.,

2001).

ii. MATURITY MODEL

44

Companies use the following main maturity models to analyse their supply chain

processes:

SCOR (explained in the earlier in this section)

CSC framework

Business process orientation maturity model

The CSC framework was developed by Computer Sciences Corporation (CSC) and

tested for the first time in 2003.

First level – company orders development of its functional process by integrating

the functional areas in the company and with each company

Second level – company focuses on activities and effectiveness of physical

distribution

Third level – company changes or reshapes its inter-organizational processes and

starts to develop networks with few carefully selected allies

Fourth level – company begins collaborative initiatives

Fifth level – company completes joining between agents throughout the supply

chain

Companies which that reach greater levels of organizational performance and have a

better work environment have guidance for their business processes based on more

cooperation and less conflicts (Lockamy and McCormack 2004).

The business process orientation maturity model uses SCOR to identify maturity of

processes (Lockamy and McCormack 2004, SCC, 2003).

Ad hoc (first level) – is characterized by poorly defined and bad structured

practices. Process measures are not applied, performance is unpredictable, costs

are high, cross-functional cooperation and customer satisfaction is low.

Defined (second level) – the basic processes are defined and documented.

Linked (third level) – the organizational structures become more horizontal by

creating authorities to overlook the different functional units. Supply chain

45

managers and clients/ partners work as a team with the effort to continuous

improvement and better performance improvement.

Integrated (fourth level) – organizational structures and activities are based on

supply chain management principles. Performance measurements are used based

on collaboration. Good team spirit, reduced costs and customer satisfaction are

the results.

Extended (fifth level) – multi-organizational supply chain management teams

appear. The support base of the extended supply chain is built by trust and auto-

dependence. Investments and the return on investments in system’s improvements

are shared.

Ideally a statistical analysis to study the relationship between variables and discussion of

the business process/ model is a prerequisite for making adjustments or changes to the

existing model. A model that has emerged from such analysis and discussion is suggested

for the company to have a clear understanding of where it stands.

FIGURE 4 - SCPM3 (SOURCE: RESEARCH DATA)

46

Level 1 (Foundation) - By considering restrictions of capacity and customer alignment

the critical business partners are identified and order management best practices are

implemented.

Level 2 (Structure) – Implementation of control items in demand management

processes, production planning, scheduling and for distribution network management.

Level 3 (Vision) - Establishing process owners who in turn are responsible for its

management and performance results.

Level 4 (Integration) – The processes of suppliers and customers integrate with

organizational processes in a collaborative platform

Level 5 (Dynamics) – Continuously improving its processes by considering its key

performance indicators and reacting in a synchronized and fast way to the changes in the

competitive environment the chain behaves dynamically.

Based on all the above, the following steps may be used as a roadmap for process

improvement to optimize and maximize the return on investment in supply chain

management.

Discovery stage – defines the scope of what needs to be evaluated and analysed

Knowledge stage – contextualizes the results obtained from discovery stage and

make recommendations for improvement

Reuse stage – planning and implementing the recommendations from knowledge

stage and preparing to restart the discovery – knowledge – reuse stages

Based on the above model the company should identify where it stands as of now and

where and how far it has to reach in order to achieve optimum results. The following

figure (5,6,7,8,9) give an understanding of the high end process and low end process

which may be followed and adapted by the company for moving toward having a

responsive and agile supply chain system.

47

FIGURE 5 – VALUE CHAIN PLANNING

FIGURE 6 - SUPPLY CHAIN MANAGEMENT

48

FIGURE 7 – THINKABLE CHANGES TO EXISTING PROCESS

49

FIGURE 8 – EXAMPLE PROCESS FLOW

50

FIGURE 9 – POSSIBLE VARIATION POINTS

Refer to Appendix. B for Best Practice Measures

51

DISCUSSION

The findings from the case study and literature suggest that executives, managers and

supply chains are under extreme stress as it is becoming more difficult to respond to the

challenges with the traditional supply chain strategies and designs. The challenges are in

terms of cost suppression, globalization, visibility, customer closeness and risks. New

designs and strategies are getting outdated even before executives can implement them

and hence the area of cost containment or suppression has become chaotic. Supply chains

that are flexible and agile can respond quickly to changing market conditions and are

seen as a remedy for cost instability. Despite visibility and collaboration being the top

challenges in supply chain management it is not getting much attention in terms of

programs and activities.

Executives and managers are emphasizing on continuous process improvement, strategy

alignment and cost reduction. In contrast, executives of top supply chains are more

focused on improving visibility and collaboration of supply chains. Such as collaborative

planning with suppliers, customer vendor managed inventory, collaborative planning

forecasting and replenishment (CPFR) programs with customers, continuous

replenishment planning and shared real time data. Most companies do not know that risks

and performance should be managed together. Executives mention the lack of

standardized processes, insufficient data and inadequate technologies as the core

difficulties that prevent effective risk management. For effective risk management there

should be process controls in operations and logistics, compliance programs with

suppliers and providers, risk management in supply chain planning and event

management to monitor disruptions. Most of the companies struggle to correctly detect

customer needs but some of them design products with their suppliers and customers.

Only few companies even with all the demand-driven hype in supply chain planning

include customer input, while most of them invite supplier participation. Companies

don’t bother and often ignore customer interactions because it is costly and time

consuming. But as the burdens of becoming more profitable increases, supply chains

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can’t afford to carry excess inventory, lost sales and missed innovation opportunities

caused by lack of customer collaboration. It is found that top supply chains utilize

opportunities to synchronize plans internally and with external supply chain partners;

more so with their customers when compared to the less effective peers. Many companies

around the world are encountering problems with global sourcing, long lead times and

poor quality. But, of course, the financial advantages of globalization of markets and

operations overshadow these negatives.

The increased profits are not necessarily tied to lower costs but it is definitely tied to sales

increases. In many cases companies are experiencing increased costs as a result of

increased globalization. It can be said that globalization has contributed to revenue

growth and not efficiency. Top supply chains report overall performance (short lead time,

reduced costs, high service levels, and excellent quality), increased sales and improved

margins. It is very important for top executives to understand that it is not enough to

build supply chains that are demand driven, transparent and efficient but they must be

smart. The responsibility lies on the shoulders of executives who should become strategic

thinkers, collaborators and orchestrators and optimize complex networks of global

capabilities.

SUGGESTION

The Company should:

Have a true understanding of current supply chain performance and the actual

needs and wants of the customers.

Have an understanding of what the customer is willing to pay.

Have a supply chain strategy which runs the technology.

Align supply chain strategy with company strategy.

Align incentives across supply chain functions.

Align incentives with external supply chain parties.

Support people with the right data.

Respond to actual demand and not rely on forecasts.

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Identify the right process, strategy, procedures and knowledge for smooth

functioning of the supply chain.

Align internal business performance with external customer demand

requirements.

Have reliable and accurate forecasting.

Have better understanding of new product demand.

Have a market-responsive process for new products or unpredictable demands.

Have better inventory and production planning.

Bear in mind that with a very large product range, uncertainty in supply chain will

have to be accepted.

Ensure that internal and external parts of the supply chain should have access to

consistent data.

Empower people to make decisions quickly.

Set up a committee for supply chain disruption risk management process.

Identify key processes likely to be affected by disruptions, e.g. new product

development, operations, manufacturing etc.

Identify key assets likely to be affected by disruptions, e.g. inventory, property,

brand image etc.

Provide data to supply partners on changes in supply and demand.

Track economic changes, political changes, technological changes, legal changes,

changes in government regulations etc.

Find more reliable vendors in different parts of the world.

Have a clearly defined need, based on supply chain strategy prior to application of

any new supply chain technology.

Have clear expectations about what the supply chain technology can or cannot do.

Understand the need of human intervention to work. E.g. how to feed good data

into the system, how and when to update information?

Be aware of the existing layers of supply chain systems which may sometimes be

connected and sometimes not connected.

Set up the supply chain system right so that the people do not end up disbelieving

the machine.

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Understand that it is very hard to calculate how much a new supply chain

technology can help.

Integrate order taking with product inventory levels

Make changes so that low inventory levels must trigger automatic ordering

Make changes so that order to manufacturing must generate a list of the needed

resources and their availability

See to it that changes in order must be transmitted automatically to suppliers and

their suppliers

Have tracking systems which is made available to customers so that they can

check the status of their orders

Have internal controls built in to manual/administrative process steps and/or

computer system procedures

Clearly document, enforce and regularly exercise the manual and administrative

controls

Align with suppliers and customers and focus on processes

Have efficient and effective lines of communication and interfaces between

involved parties

Use process flowcharts and process maps (software)

Study both internal and external process of the supply chains

Measure and compare the performance of existing supply chains

Benchmark the performance of supply chains

Do business process reengineering before a solution software is attempted and

implemented

Develop and maintain relationships with business partners and key employers in

these organizations

Provide visual charts to employees

Provide real time access to inventory levels to sales representatives so that they

can set appropriate delivery expectations

Provide online access to order status to customer support representative to answer

customer order queries

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CONCLUSION

For a supply chain to be efficient and responsive it should focus on cost reduction that is

aligned with speed of order fulfilment, service level and customer satisfaction.

Unfortunately companies are not able to achieve efficiency and responsive

simultaneously. Supply chain efficiency and responsiveness can be facilitated by use of

supply chain partners in design, development, planning, forecasting, replenishment,

identifying bottlenecks, developing corrective actions, identifying risks, improving

visibility and relations with customers and suppliers. The biggest challenge is to identify

the right supply chain strategy which varies for different products. The next challenge is

to align the corporate strategy with the supply chain strategy. Another major and obvious

challenge is that executives are grappling to have a better understanding of the key

drivers for their supply chain operations strategies. Supply chain optimization is the

current way of improving efficiency, responsiveness and profitability. This requires top

management commitment and sense of mission. Well informed and qualified

professionals and consultants are needed to maintain and rework the methods for facing

the ever changing challenges. Since uncertainty and volatility are here to stay it is

recommended to have a risk based efficient and responsive supply chain for companies to

have a sustainable long lasting competitive advantage. A recommendation to replace or

modify the present process with a better one should be made with proper justification.

The process must include systematic periodical analysis by reason and present suitable

information report that pinpoints the major reasons and trends for the top management to

take corrective actions to control exceptions and keep them within acceptable limits. The

main limitations of this study was in terms of data collection as all departments were

quite apprehensive in sharing information and difficulty to bring all departments together

to focus on processes. The next limitation is that departments are not aware of loss of

revenue with shortcomings in the process they follow. Last but not the least is to identify

the reasons for delay in order fulfilment.

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APPENDIX A FOR AS-IS MODEL

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APPENDIX B FOR BEST PRACTICE MEASURES

Construct name Question

Strategy team

Does the team have a supply chain strategy?Does the team measure the impact of strategy on supply chain performance?Does the team use a supply chain performance measurement system?Who is involved in selection of supply chain team members?Does the team consider customer satisfaction or product profitability or both?Are customer priorities defined by the team?Has the team defined product priorities?Does the team participate in customer and supplier relationships?

Process governance

Is a process owner identified for supply chain planning?Is there a process owner for supply chain planning?Is there a process owner for "promise delivery"?Is there a process owner for “demand management”?Is there a process owner for procurement management?Is there a process owner for network management?Is there a process owner for order management?Is there a process owner for production management?Is there a process owner for distribution management?Is there a process owner for transportation management?Is there a process owner for quality management?

Foundation building

Do you have a documented order commitment process?Do you make order promises beyond your current inventory level?Do you make changes in response to screams of urgency?Do you make deliveries by bypassing the normal process?Do you have documented production management process?Do you have documented distribution management process?Do you have documented procurement management process?Do you have documented demand management process?Do you have documented transportation management process?Do you have documented supply chain process?Do you have documented network management process?Is the process supported and complemented by the information system?Are all variability well agreed and standard?Do you have strategic suppliers for all products and services?

Demand management

Does your current IT system support demand management?Do you analyze the demand variability for each of your products?

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Is historical data used in developing the forecast?Are you using mathematical models for demand forecasting?Are forecasts done on a regular basis?Do you do a forecast for each and every product?Do you use customer information?How often is the forecast updated?Do you measure the forecast accuracy?Do you use the forecast to make plans and commitments?

Procurement team

Is there a procurement team?Does the team work closely with sales, marketing, manufacturing, quality, designing?Does the team meet on a regular basis?Do you develop a plan by collaborating with your suppliers?Do you measure supplier performance?Do you share information with your suppliers about planning and scheduling?Do key suppliers have their workers on your site?

Production management

Do you adhere to production plans and scheduling?Do you measure adherence to plan?Do you have plans at item level?Do you have integrated and coordinated planning processes across divisions?What methods do you use for planning/Do you use constraint based planning methods?Is shop floor scheduling and overall scheduling process integrated?Do your current IT systems support the process?

Order management

Do you have the capability to respond to unintended orders?Do your current IT systems support the order promise process?Do you know the stock out situations?Do you measure the out of stock situations?Can you rapidly re-plan to respond to changes?Do you measure customer requests to actual deliveries?Do you measure customer satisfaction based on on-time deliveries?Can you commit a firm quantity and delivery date for a given customer order?Are your commitments to the customer credible?

Transportation and distribution management

Does your current IT support transportation and distribution management?Are all the processes integrated with supply chain processes?Do you have transportation and distribution measures in place?Do you recognize and reward the process partners?

Operations Do you have a operations planning team?

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planning team

Are the supply chain functions and support functions represented in this team?Is there a documented operations planning process?Do you make changes and adjustments as a result of team meetings?

Responsiveness

Are finished goods inventory able to meet short-term customer demands?In the planning process Is supplier lead times given a major consideration?Do you track the completed customer orders which are delivered on time?

Collaborative integrated practices

Do the marketing and sales, production, procurement, planning, transportation and distribution team up in the order commitment process?

Is the order commitment process aligned with the supply chain decision processes?Do you "make to order"?Do you include your customer's planning and scheduling information in your planning and scheduling?Do you have formal documented approval process for changes?Do you develop a forecast for each customer?

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REFERENCES

Chopra, Sunil, D.V, Kalra, Peter, Meindl. (2007) Supply Chain Management: Strategy, Planning, and Operation. Third Edition. New Delhi: Pearson Education. ISBN: 81-317-0401-7.

Upendra, Kachru. (2009) Exploring the Supply Chain: Theory and Practice. First Edition. New Delhi: Excel Books. ISBN: 978-81-7446-734-8.

Dilek, Onkal. (2011) Supply Chain Management: Pathways for Research and Practice. Ed. InTech. ISBN: 978-953-307-294-4.

PwC. (2013) Next-Generation Supply Chains: Efficient, Fast, and Tailored. Global Supply Chain Survey.

Deloitte. (2011) Supply Chain Resilience: A Risk Intelligent Approach to Managing Global Supply Chains. Business Continuity Institute.

The Boston Consulting Group Knowledge@ Wharton. (2006) Creating the Optimal Supply Chain. Wharton University of Pennsylvania. (Special Report).

Martin, Poiger. (2010) Improving Performance of Supply Chain Processes by Reducing Variability. Vienna University of Economics and Business. (Dissertation).

Dennis, Minnich, Frank, H, Maier. (2007) Supply Chain Responsiveness and Efficiency: Complementing or Contradicting each other? International University in Germany.

Marcos, Paulo, Valadares, de, Oliveria, Marcelo, Bconzo, Ladeira, Kevin, P, McCormack. (2011) The Supply Chain Process Management Maturity Model: SCPM3. Universidade Federal do Espirito Santo. Universidade Federal de Minas Gerais. DRK Research. Brazil. USA.

Shekhar, B, Raju, Devi, P, Umamaheswarin, (2007) Management Dynamics. International Journal of Business Research. International Academy of Business and Economics. ISSN: 1555-1296.

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