Analysis of Flexibility and Supply Chain Management in Selelct Indian Industries
Gupta, M PAbstract
This paper presents a framework to assess the performance and lend of flexibility of supply chain management in an organization. A concept of Supply Chain Index and the Flexibility Index have been introduced in the framework and adopted to carry out this study on the Indian industries. A field study was carried out to understand the importance of different variables used to assess the supply-chain performance of organizations. The results revealed that majority of the factors affecting supply chain management, are associated with the information sharing across the internal and external stakeholders. This establishes the fact that high importance should be given to collaborative set up in order to enhance the efficiency of supply chain in different industry segments. Web offers a unique opportunity to achieve this as it is the cheapest and the most flexible media for collaboration, and therefore, is an apt choice to facilitate the collaborative network.
Keywords : collaboration, flexibility, information and web, supply chain,
Introduction
The impact of web can be studied on all the aspects starting from the supplier side to the enterprise environment and then moving on to the customer side, these constitute the supply chain of an organization. Also if we consider an Enterprise Information System, it covers the entire value chain from the Enterprise Resource Planning (ERP) to Customer Relationship Management (CRM) and going up to Supply Chain Management (SCM). Though the literature is full with buzzwords such as: integrated purchasing strategy, integrated logistics, supplier integration, buyer supplier partnerships, supply base management, strategic supplier alliances, supply chain synchronization and supply chain management, to address elements or stages of this new management philosophy (Tan et. al., 1998a; New, 1997; La Londe and Masters, 1994), the scope of SCM has become very clear. The available literature on SCM is concerned with advocating SCM practices and the improvement in performance brought about by these practices.
Balsmeier and Voisin (1996) advocate integrating the supply chain through strategic partnerships, inter organizational business process reengineering, information sharing, improved communications, clarification of needs and expectations, elimination of problems and concerns, consistent performance, and creation of competitive advantages, integrating the supply chain gives the business more options on competitive strategy. Tan (2001) has reviewed the literature base and development of supply chain management from two separate paths that eventually merge into the modern era of a holistic and strategic approach to operations, materials and logistics management. In the 1950s and 1960s, most manufacturers emphasized mass production to minimize unit production cost as the primary operations strategy, with little product or process flexibility. The intense global competition in the 1980s forced world-class organizations to offer low cost, high quality and reliable products with greater design flexibility. Manufacturers utilized just-in-time (JIT) and other management initiatives to improve manufacturing efficiency and cycle time. The evolution of supply chain management continued into the 1990s as organizations further extended best practice in managing corporate resources to include strategic suppliers and the logistics function in the value chain. A key facilitating mechanism in the evolution of supply chain management is a customer focussed corporate vision, which drives change throughout a firm's internal and external linkages
The deployment of the emerging concepts of information technology, strategic alliances, and business process re-engineering within the intra/inter-organizational context have become a popular prescription in enhancing supply chain management. Humphreys and Sculli (2001) have reviewed the theoretical foundations for the study of inter-organizational relationships within a supply chain management context, and analyzed the contingencies of deploying inter-organizational information systems (IOIS).
In the traditional setup (Bowersox et. al., 1990) all the internal and the external entities are treated as separate workgroups. They are connected through the exchange of information and physical goods. They are believed to function in a sequence and this results in lots of duplication of effort and more often, it results in delay of delivery to the customers. The entities work in their own domain and hence the synchronization among all these entities is missing, most of the organizations from different industries fall in this category. There are certain organizations which have marginally improved set up in terms of the integration of all the internal entities within an organization. These organizations can be characterized by the micro ERP or a full-fledged ERP in operation. However, ERP systems alone do not deliver a more efficient and responsive supply chain. Several important cross-industry trends are driving requirements for better supply and demand planning, which in turn enables strategies such as alternate sourcing, customer-responsive available-to-promise delivery, and mass customization.
Electronic data interchange (EDI) has been used to process business transactions between suppliers and customers since the early 1960s, covering various business activities such as sales/purchase, order processing, and the transfer of funds. Electronic Data Interchange (EDI) also found some applications but has several shortcomings. It is incapable of identifying and addressing supply chain events. As a result, its adoption is very less and has not been universal. In recent times, advanced inter-organizational computer networks have enabled the application of new concepts in supply chain management, e.g., systems such as reversed inventory replenishment schemes. The Internet is starting to make web-based electronic commerce feasible, and the utilization of electronic commerce in supply chain management will increase in both sophistication and volume. Internet offers a platform of e-business which is changing the Industrial Age models of customer acquisition, procurement, pricing, and customer satisfaction as well as how we measure the performance of a corporation. Focus on the customer is all-important. The effect of e-business on the total supply chain is also no less spectacular.
Though Internet has influenced every business activity, its use in SCM is a relatively recent phenomenon. There have been few, if any, studies done on the use of the Internet in SCM. The principal literature support comes from the descriptions of projects of companies on how they have utilized the Internet in the management of their individual supply chains. The biggest potential of the Internet is being realized by speeding up communication between customers and their suppliers, improving service levels, and reducing logistics costs. Lancioni et.al. (2000) discuss how the Internet is being used in managing the major components of supply chains including transportation, purchasing, inventory management, customer service, production scheduling, warehousing, and vendor relations. There are several example of web applications in various organizations such as General Electric, Fisher Scientific, The Ford Motor Company, Rollins Leasing Inc., and Waste Management Inc. Already the successes of Fortune 500 and smaller companies committed to a Web model offer irrefutable proof that e-business spikes the performance curve on the buy side and the sell side (IDC Report, 2000). This is an emerging paradigm to integrate the entire supply chain workflow and is exhibited in Figure 1.
This paper is an attempt to address the critical issues of supply chain management in relation to the web. Flexibility has long been recognized as the organizations capability that has the potential to impact the competitive position and the business performance of the organization. A framework to calculate the Supply Chain Index and the Flexibility Index has been adopted to carry out this study on the Indian industries. We introduce the notion of implementing the web based supply chain management to build flexibility in an organization over a period of time. In general the term "flexibility" has a positive connotation: flexible organizations are better ones (Leeuw and Volberda 1996). Flexibility has been historically used to refer the blend of capabilities and attributes that facilitate adjustments to change according to the situational context (Evans 1991). Upton (1994) defines flexibility as "the ability to change or react with little penalty in time, effort cost or performance". Flexible Systems Management uses the concept of continuum (options) to build systemic flexibility in management (Sushil, 2000). Flexibility in supply chain execution means that the applications must change and adapt as quickly as the business around them.
The Methodology
The figure 2 describes the methodology of this study. The supply chain parameters and the level of flexibility in the system affect the performance of the supply chain management in an organization. In view of this, the objective of the research is set
* To establish the effect of different variables in flexibility and supply chain management for different industry segments.
* To measure the supply chain index and the flexibility index of various organizations in the select industries.
To accomplish the above, two types of questionnaires are designed. One utilizes the expert opinion to measure the global weight of supply chain and flexibility variables for each industry segment. The other is used to get industry feedback through professionals. Analytic Hierarchy Process (AHP) is being used to calculate the global weights of the variables. The application of the AHP approach explicitly recognizes and incorporates the knowledge and expertise of the participants in the priority setting process, by making use of their subjective judgments, a particularly important feature for decisions to be made on a poor information base. The AHP helps people cope with the intuitive, the rational and the irrational, and with risk and uncertainty in complex settings. Important part of this approach is the comparison of the alternatives and the criteria. They are compared in pairs with respect to each element of the next higher level. For this relative comparison, the fundamental scale of Table 1 has been used. It allows to express the comparisons in verbal terms, which are then translated in the corresponding numbers.
Synthesizing of the comparison matrix results in the magnitude of priorities of the variables being considered in this paper. These magnitudes are regarded as global weight. In the present case, the data collected is analyzed with the help of 'Expert Choice'. The output of expert Choice is in the form of Global Weights for each variable.
The second questionnaire is used to assess the performance of supply chain and flexibility indices of leading organizations representing these industry segments. Weights obtained with the help of first questionnaire has been used here to obtain the weighted average value which is regarded as supply chain or flexibility index.
Further, it is attempted to establish the fitness of web based supply chain management as a prospective solution or different industries.
Variables for Supply Chain Index
Historically most companies have focused their performance measurement on achieving functional excellence. With the advent of SCM principles aimed at integrating their supply chains, many have objectives to increase their degree of enterprise-wide integration and extended enterprise integration. In order to achieve these types of objectives, their performance measurement systems will need to align with them. Advice for these supply chain measurement systems falls into five areas that include: function-based measures, process-based measures, cross-enterprise measures, number of measures to be used, alignment of executive to management-level measures.
Because of the non-availability of a standard model, traditionally different companies used to manage their supply chain in different ways. The first general framework for supply chain management- supply chain reference model (SCOR) was developed by the Supply Chain Council (Stewart 1997); a second update was released in August 1997. This is one of the first attempts to create a standardized model for communication among partners within the chain. It is the most recognized and global method of measuring performance of the Supply-Chain Operations initially developed in 1996 by the Supply-Chain Council. In the SCOR model, the supply chain consists of a plan, source, make and deliver process elements which revolve around the entire supply chain. The main assumption of the model is that by integrating the process elements along the supply chain companies should become more competitive. As a cross-industry standard for supply chain management, the computerized model is a diagnostic tool for supply chain practice improvement and communication among supply chain partners. Its standard process references support benchmarking and identifying best practices. Application encompasses all interactions from order entry through fulfillment and paid invoice. Its standard definitions recognize both physical and service "products."
The supply chain measures proposed for the study are in line with the Supply Chain Council's SCOR Model (1998). The variables used for questionnaire survey are a subset of the variables of Supply Chain Effectiveness and are in line with the opinion of the experts: Customer Service Measures, Process and Cross Functional Measures, Purchase Related Measure, Manufacturing, Marketing and Logistics related Measures, Extended Enterprise Measures and the Collaborative Measures.
Details of the sub variables are explained as below:
a) Customer Service Measures
* Order Fill Rate
* Line Item Fill Rate
* Quantity Fill Rate
* Backorders/ stockouts
* Customer satisfaction
* % Resolution on first customer call
* Customer returns
* Order track and trace performance
* Customer disputes
* Order entry accuracy
* Order entry times
b) Purchasing Related Measures Material inventories
* Supplier delivery performance
* Material/component quality
* Material stockouts
* Unit purchase costs
* Material acquisition costs
* Expediting activities
c) Process, Cross-Functional Measures
* Forecast accuracy
* Percent perfect orders
* New product time-to-market
* New product time-to-first make
* Planning process cycle time
* Schedule changes
d) Manufacturing Related Measures
* Product quality
* WIP inventories
* Adherence-to-schedule
* Yields
* Cost per unit produced
* Setups/Changeovers
* Setup/Changeover costs
* Unplanned stockroom issues
* Bill-of-materials accuracy
* Routing accuracy
* Plant space utilization
* Line breakdowns
* Plant utilization
* Warranty costs
* Source-to-make cycle time
* Percent scrap/rework
* Material usage variance
* Overtime usage
* Production cycle time
* Manufacturing productivity
* Master schedule stability
e) Extended Enterprise Measures
* Total landed cost
* Point of consumption product availability
* Total supply chain inventory
* Retail shelf display
* Channel inventories
* EDI transactions
* Percent of demand/supply on VMI/CRP
* Percent of customers sharing forecasts
* Percent of suppliers getting shared forecast
* Supplier inventories
* Internet activity to suppliers/customers
* Percent automated tendering
f) Logistic Related Measures
* Finished goods inventory turns
* Finished goods inventory days of supply
* On-time delivery
* Lines picked/hour
* Damaged shipments
* Inventory accuracy
* Pick accuracy
* Logistics cost
* Shipment accuracy
* On-time shipment
* Delivery times
* Warehouse space utilization
* End-of-life inventory
* Obsolete inventory
* Inventory shrinkage
* Cost of carrying inventory
* Documentation accuracy
* Transportation costs
* Warehousing costs
* Container utilization
* Truck cube utilization
* In-transit inventories
* Premium freight charges
* Warehouse receipts
g) Market Related Measure
* Percent of sales from new products
* Time-to-market
* Percent of products representing 80% of sales
* Repeat versus new customer sales
h) Collaboration
* Availability of Market information to all internal stakeholders
* Availability of production information to all concerned
* Customer information to internal stakeholders
* Level of coordination among all stakeholders
* Level of information sharing
* Information dissemination to logistics
Variables for Rexibility Index
The measures of flexibility are based on three aspects:
* Flexibility in lerms of Number of Options Available
This defines the different options available at decision points in the supply chain management. The following variables are chosen:
* Level of decision-making
* Knowledge Management
* Product / Service Offerings
* Level of Information Sharing
* Flexibility in Terms of Freedom of Choice to Actors
The empowerment for decision making to the various actors is second measure of flexibility; it symbolizes decentralization in the system. The following variables are chosen:
* Number of Suppliers handled
* JIT inventory of Finished Goods
* JIT inventory of raw material
* Type of product developed
* Ability to Manufacture at different qty. levels
* Types of customers Catered
* Ability to customize features
* Ability to deliver at different locations
* Ability to cater to different type of customers
* Ability to capture Different Requirements of customers
* Flexibility in Terms of Change Mechanism in the System.
The ability of the system to maneuver as per the changes in internal and external environment is third measure of supply chain flexibility. The following variables are chosen:
* Core Businesses Processes
* Product Cycle Management Mkt. Research to Product
* Retirement
* Customer Relationship Management
* Sales to after sales support
* Order Cycle Management
* Order entry to payment
* Supplier management
* Workflow Management
The flexibility-Supply Chain Matrix
The above variables are used to bring out the supply chain and flexibility index. Analytic Hierarchy Process (AHP) is used to calculate the global weights of the variables. Professional assessment of a variable (supply chain or flexibility) is made on a five-point scale for a given organization. The supply chain or flexibility index is obtained by a weighted average of these for the organization. These Indices were plotted on a 5 by 5 matrix to determine the positioning of every organization on the Flexibility-Supply Chain Matrix. Organizations could be mapped within the matrix to have the supply chain and the flexibility index in the Low - Low, Low High, and High - Low category. This matrix helps us understand the gaps in the supply chain management for the five Indian Industrial Segments chosen for the study.
Analysis and Discussion
The data was collected with the help of two different questionnaires. The construct and the content validity of questionnaire were tested with six experts from the industry and academics. Some questions were rephrased and some were replaced by simple words. The double barrel questions were avoided. The target industries chosen are Automotive sector, Consumer Products/ Durables, Manufacturing and Engineering, Chemical and the Telecom. From every industrial sector, select high performing organizations were chosen for the study. The analysis was done on following two categories:
* Analysis of Global Weights
The first questionnaire was meant for calculating the global weights of supply-chain effectiveness variables for different industries. A questionnaire was administered to four practitioners in the respective industrial segments. In total 15 useful responses were evaluated for establishing global weights using AHP technique. The Pie chart and The Pareto chart were developed to understand the importance of variables within an industry and also with respect to different industries.
* Analysis of The Flexibility Index and The Supply Chain Index
A second questionnaire survey was administered to the industry practitioners for assessing the performance of various organizations falling into different industries. For measuring the score of an organization on different parameters an ordinal scale was used consisting of inequalities as depicted below. The response of professional was in the form of six statements and the conversion of responses was in the scale O to 5 for the purpose of analysis i.e. Can't Say (0), Poor (1), Below Expectation (2), Satisfactory (3), Good (4), and Exceed Expectation (5). The questionnaire was to assess the performance of the supply chain management of different organizations. This follows a mapping of the flexibility and supply chain effectiveness in the flexibility-supply chain matrix.
The target organizations chosen are from Automotive sector, Consumer Products/ Durables, Manufacturing and Engineering, Chemical and the Telecom. Five organizations were chosen for study from each of the sector except Chemical. They are:
a. Automotive Sector
* Daewoo Motors India Ltd.
* Maruti
* Hindustan Motors
* Bajaj Scooters.
* Eicher Tractors
b. Consumer Products/ Durables/ FMCG
* Crompton Greaves - Consumer Products (CG-CP)
* LG
* Philips
* Samsung
* Reckitt & Benckiser
c. Chemical and Pharmaceutical Sector
* Vam Organics
* Max Healthcare
* Reliance
d. Manufacturing & Engineering
* Crompton Greaves Ltd.
* Greaves Ltd.
* Siemens
* L&T
* Merino Panels & Products Ltd.
e. Telecom
* Tata Telecom
* Crompton Greaves- Telecom
* Siemens Telecom
* HFCL
* Reliance Infocom
These organizations were chosen on the basis of their standings in the industry and as suggested by the 15 experts approached for interview. All the organizations are in the top bracket of their respective Industries. The implementation of supply chain involves the ability to appreciate the power of information technology in removing the inefficiencies from the system.
Trend Analysis of Supply Chain Variables Across Industry Segments
The figure 3 clearly represents the global weights of the eight variables describing supply chain management for the five industries chosen for the study.
Supply Chain Variables
From the figure 3, it is obvious that:
* Collaboration has emerged as the single most important measure for all the organizations. It reflects the importance of co ordination among various departments within the organization and other partners outside the organization.
* Customer Service measure is also placed at the moderate level. It is considerably high for consumer products, telecom industries and the automotive industry. Presumably these industries are more oriented towards customers. The core manufacturing and the chemical industry does not have major dependency on the customer service.
* Process Related Measures are of high importance for the manufacturing and chemical industry as their dependency on the process to deliver quality product or service is high. The other segments do not have much emphasis on this measure.
* Purchase Related Measures are given least importance of all the supply chain measures in all the Industries as compare to other variable. These measures are slightly on the higher side for the manufacturing and the chemical industry. For these two sectors the availability of raw material in time is important.
* Manufacturing Related Measure is of maximum importance to the manufacturing industry. The general trend in these industries is the efficiency and the productivity of the set up and that is why as compared to other industries it is critical here. Chemical industry along with automotive and the telecom industry have moderate importance of these measures as they also have manufacturing setup at the backend. Consumer product has the least dependency on these measures, as manufacturing does not come among the top priorities.
* Logistics Measures does not have much importance in the five industries chosen. It seems to be lowest in the priority list of the organizations.
* Marketing Measures importance is also 0 the lower side for most of the industries. The consumer products industry has a higher focus here because of cutthroat competition in the market and this emerges out as the key-differentiating factor.
* Extended Enterprise measure has mixed response from the industries. For consumer Product Industry it is of large importance as the trends have changed and now internet has emerged as the major media for exchanging goods. It is least for automotive sector probably because of the fact that these industries generally work in cluster along with the suppliers and they generally do not need and extended setup with the external stakeholders.
The above analysis also helps to examine the importance of various supply chain variables across different industry segments as described below.
Consumer Products (CP)
Collaboration and the customer service have high importance in this industry. This industry is highly customer focused and level of information about the various issues like market information and the internal manufacturing related information is essential. The extended enterprise is also emerging as a major issue because of the requirement of the organization to have the complete value chain information. The other variables are less significant as far as the consumer products are concerned. A Pareto Chart helps in drilling down to the lowest granularity of the measuring variables (Figure 4).
* Twenty variables out of total forty-five variables express the eighty percent explanation of the supply chain health.
* Most of the variables in top eighty percent are related to the information exchange either within the organization or with the external stakeholders. This reflects the importance of information exchange is of utmost importance.
* The 55% of the consumer products supply chain importance is covered by the 20% variables.
* The top five variables belong to collaboration, customer service, extended enterprise and the logistics. It is clear that focus is on the customers and for that information exchange emerges out as the backbone of the setup.
Telecom
The telecom sector also has focus on the collaboration and the extended enterprise setup. The requirement of this industry is to free flow of information on the internal as well as the external agents. The customer service emerges out the next strong measure for the effectiveness of supply chain management in the Telecom sector. Manufacturing is the next strong measure following the customer service. As per the Pareto analysis similar to earlier one:
* Twenty of the forty-five variables explain the eighty percent effectiveness of the supply chain. Most of these measures are associated with the information flow within and outside the organization. The other important factor is the way processes are carried out in the organization.
* The top four of the five measures are related to the exchange of information. This reflects the importance of information in this industry.
* The top 20% variables describe the 50% importance of the supply chain mechanism in the automotive sector.
* The information management services have emerged out as the single most important factor.
Chemical
In the chemical industry, processes are the most important area to manage the supply chain, followed by manufacturing and the collaboration. Put together, these three areas explain about 60% of the effectiveness of the supply chain management. The chemical industry generally has a very traditional set up and the management of the operations within the organization covers most of the supply chain effectiveness.
*Twenty-three variables explain eighty percent of the supply chain effectiveness for the chemical industry. This can be attributed to the fact that many of variables have small and almost equal importance as far as the supply chain is concerned.
* The top 20% variables explain only 45% of the supply chain effectiveness.
* The top five variables are mostly from the process related area and the information exchange set up. This explains that emphasis is given to the processes and the information exchange.
* Clearly from the analysis the importance of information exchange emerges out in particular to the coordination among different functional units within the setup.
Manufacturing
Manufacturing is the single most important variable to address the supply chain effectiveness in the manufacturing sector; this is obvious as the manufacturing sector is focused towards the operational excellence in the production. Collaboration and processes follow manufacturing variables. In any manufacturing industry the internal collaboration is desired to achieve operational excellence. The customer service is of moderate importance in this industry.
* Top twentyone out of forty five variables explain eighty percent effectiveness in the supply chain. Most of these variables are collaboration and the manufacturing related. The operational excellence of this industry is driven by the effective information exchange among the stakeholders.
* The top 20% variable measure upto 50% level of supply chain effectiveness. These variables are again dominated by the collaborative and the manufacturing measures.
* From the global weights of the variable we can make out that the manufacturing excellence is required with the help of information exchange and hence the information exchange and the collaboration is the key aspect.
Automotive
The collaboration has emerged as the single largest measure of supply chain effectiveness in the automotive sector. This can be attributed to the level of coordination required between different functional units at the time of developing the product. They should be in synchronization with what is happening in the other areas. Manufacturing and the customer service are other two important measures. The importance can be attributed to the ability of the organization to understand the customer requirements and then translate them into the desired products with the help of strong manufacturing setup.
* Twenty-one of the forty five variables explain eighty percent effectiveness of the supply chain. Most of these measures are associated with the information flow within and outside the organization. The other important factor is the way customer service is addressed in the industry.
* The top four of the five measures are related to the exchange of information. This reflects the importance of information in this industry.
* The top 20% variables describe the 50% importance of the supply chain mechanism in the automotive sector.
* The information management service has emerged as the single most important factor and it is associated with the strong manufacturing processes.
Trend of Rexibility Variables Across the Industry Segments
Global weights defining importance of the flexibility variables in the context of supply chain management across the various industry segments are shown in figure 5. We observe a varying trend of the importance of these variables.
* Number of Options Available: as far as flexibility is concerned, is of high importance in consumer products and the telecom industry. The organizations in this industry work on getting maximum leverage out of the systems by generating and exercising on different options. Automotive, Manufacturing and Chemicals are not quite focused towards working for more options. They are moderately dependent on these measures to the extent of getting more options in terms of the suppliers and the inventory management.
* Change Mechanism: improves ability of the existing system to absorb changes. These are of major importance for processes and manufacturing based industries than others. The core strength of these industries lies in their capability to absorb changes. The consumer products and the telecom sector, on the other hand, show the positive correlation with supply chain flexibility if more options are available to exercise.
* Freedom of Choice: is low-key factor for the supply chain flexibility as most of the organizations have ERP in place and the information is readily available to the actors.
Detail analysis of the flexibility variables for five industry segments is discussed below:
Consumer Products
As far flexibility is concerned, in the consumer products sector, the ability to generate more options are very important. The pressures from the competition in this sector are so intense and coupled with increase of customers expectations, that the companies are forced to look for more alternatives. They have to act fast in order to leverage the opportunity. These organizations have sophisticated ERP in place, so the freedom of choice is not a major issue.
As per the Pareto chart as shown in Figure 6 the following observations can be mode :
* The top 50% of the flexibility variables describe the 80% level of flexibility in supply chain management for the consumer products industry. The emphasis lies on exploring more options in satisfying the customers, which is the most important factor.
* The flexibility required to satisfy the customers is emerging from the organizations' ability to change the processes.
* The top 20% of the variables influence 55% of the supply chain flexibility in this industry.
* The ability of the organization to absorb the changes drives the organization to create many options at the time of making decision.
Telecom
The emphasis on number of options generated is the single most important factor contributing towards flexibility in supply chain for the telecom sector; other factors are less influential. This can be attributed to the level of standardization of processes in this industry. The changes in this industry are basically handled by the good freedom of choice, which in turn, drives the options for the set up.
As per the Pareto analysis similar to earlier one; it may be observed that :
* Top eight variables out of eighteen explain 80% effectiveness of flexibility in the supply chain. Most of these variables belong to the generating options for the organization. This industry is more inclined towards modernization and customer requirements and looks for new ways and means to generate options so that the ultimate aim can be achieved.
* The top 20% variable explain 6% of effectiveness in flexibility of the supply chain for telecom sector. Most of these variables are focused on to generating options.
* A close look reveals that this industry requires high degree of flexibility to address to the customer needs.
Chemical
The change mechanism is the most important contributor to the level of flexibility in the supply chain management for the chemical industry. This can be attributed to the heavy dependence on the manufacturing and the processes for this industry. A company can only gain differentiation by adopting flexible processes. The number of options is moderately required as this is a traditional industry with stable setup.
* The top eight variables explain eighty percent level of flexibility in the chemical sector. Majority of them are associated with the change mechanism, hence the change mechanism appears as the single most important variable to infuse flexibility in the chemical sector.
* The top 20% variables influence upto 58% of flexibility in the entire supply chain.
* The top 4 influencers are associated with the change mechanism and they together explain the 58% of the supply chain flexibility.
Manufacturing
Ability to change constitutes the highest measure of flexibility in supply chain of the manufacturing Industry. This industry heavily focuses on the processes and the manufacturing practices, and the only way to become leader in the industry is to develop strong processes which are flexible enough to accommodate changes in the external as well as the external environment. The other flexibility variables seem to be of moderate importance. The manufacturing setups are generally with tall hierarchy and this may be the reason for low importance to the freedom of choice as the guidelines for making decisions are already laid and no much changes are frequented.
* The top eight variables describe the eighty percent level of flexibility in the supply chain for the manufacturing sector. Majority of flexibility measures are focused towards flexibility in the production operations and it basically comes from the ability to adapt to the changes.
* The top 20% of the variables explain 60% of flexibility in the supply chain context. all these variables are associated with the production related flexibility. These are closely related to the production processes.
* The overall observations indicate towards a requirement of flexible manufacturing setup.
Automotive
The change mechanism is the most important contributor in achieving flexibility in the supply chain management for the chemical industry. This can be attributed to the heavy dependence on the manufacturing and the processes for this industry. The company can only gain differentiation by adopting flexible processes. This is a traditional industry with the stable setup. So other flexibility variables are not as relevant as the change mechanism.
* The top 20% variables explain the 58% level of flexibility in the entire flexibility related system.
* The top 4 influencers are associated with the change mechanism and they combinedly explain the 58% of the supply chain flexibility.
* The top measures are basically focused towards the change mechanism requirement. The automotive sector is quite strong in the manufacturing and the processes. Therefore, making the processes flexible to address the flexibility can derive the necessary differentiation.
Gap Analysis of Supply Chain and Rexibility Indices
In the previous section, global weights were estimated for various supply chain and flexibility variables across five industry segments. In this section, we will make use of these weights to measure the supply chain and flexibility index for the select organizations in each industry segment. Also an analysis is carried out of an organization's Supply Chain and Flexibility Index with respect to the ideal figure (wish score, i.e. 5) for each industry segment. The organizations within the same Industry segment are also compared on different parameters and explained in detail below.
Consumer Products
In the consumer products industry, analysis on the five companies was carried out as shown in Table 2.
* The Supply Chain Index (SCI) For CG-CP is 2.331 and that of Philips is at 3.164, which are 50% and 60% respectively of the wish score. These are much below the SC Index of Reckitt, LG and Samsung.
* The key-differentiating and critical factor among these two set of organizations is the level of collaboration. The level of collaboration among Reckitt, LG and Samsung is high and is at around 1 (as against the wish score of 1.233).
* The Success of these organizations can be easily attributed to the usage of IT as against traditional methods. The connectivity of these organizations with channel partners at one end and the suppliers at the other end is very impressive.
* LG and Samsung are also coming out with online kiosks to attract and retain customers. The online stores made by these organizations are also receiving an overwhelming response from the customers.
* Looking at the Flexibility Index of these organizations, we can make out that almost the same trend can be observed as in SC Index. Reckitt, LG and Samsung are again in a comfortable position.
* Philips, because of its strong internal processes, is almost as good as LG. The number of options in terms of flexibility is due to the establishment of strong IT infrastructure.
* Overall the companies are placed better in terms of Flexibility rather than the Supply Chain Index.
Automotive sector
In the consumer products industry, analysis on five companies (Daewoo Motors India Ltd., Maruti, Udyog Ltd (MUL); Hindustan Motors, Bajaj Scooters and Eicher Tractors) was carried out.
* MUL, with strong manufacturing base, is the clear leader in the automotive sector. It has the highest Supply Chain Index and the Flexibility Index at 3.45 and 3.91 respectively.
* Hindustan Motors is the only company lagging way behind the other companies. It can be attributed to the old traditional systems, which are still in place within the organization. But now HM has slowly oriented itself towards building an effective supply chain management setup.
*There is a scope for improvement of these organizations in terms of the collaborative setup. The characteristic of this industrial segment is that the suppliers are located close to the factory premises, and so they can do away with sophisticated networking and collaborative setup. But it can still be considerably improved with help of an IT backbone.
* MUL is less strong on the marketing front, as is clear from the scores. But it has a strong advantage over its other competitors in terms of the number of dealers and the service centers it has all across the country.
* Eicher is again trying to break the old traditional moulds, and that is why it is placed slightly above the Hindustan Motors.
* As far as flexibility is concerned, MUL leads the companies because of its strong presence in automotive sector and its processes are more evolved than any other organization. The options available to with the decision makers are high as compared to the other organizations.
The Manufacturing sector
In the manufacturing sector, the companies chosen are basically representing the engineering sector (Crompton Greaves Ltd., Greaves Ltd., Siemens, L & T and Merino Panels & Products Ltd.)
* L&T is leader in this segment with high scores in both the Supply Chain Index and the Flexibility Index. This can be attributed to the very strong foundation of the organization in terms of the manufacturing and the collaborative setup.
* Crompton Greaves is also placed well against Greaves Ltd., even though they are under the umbrella of Thapar Group. It is due to the fact that in terms of implementation of new technology, Crompton is far ahead than the Greaves Ltd. and this is reflected in the results.
* Seimens is placed on a satisfactory platform, it position being only to L&T.
* Merino, among these organizations, is a smaller organization. It is leader in Panels manufacturing segment. They are picking up by implementing the IT set up within the organizations in a big way. It scores better in Flexibility Index.
* In terms of flexibility, all the organizations are placed at a good level. This can be attributed to the leadership style of the management. The entire system is developed upon the processes, which give the necessary leverage to the organizations.
The Telecom sector
In telecom sector five organizations were mapped, that included Tata Telecom, Crompton Greaves- Telecom, Siemens Telecom, HFCL and Reliance Infocom.
* It is clear from the table that the leader in this category is Reliance Telecom with the highest score in both the categories.
* Tata Telecom is also placed at a comfortable position as far as telecom industry is concerned.
* Overall, the industry can be divided into three categories of organizations; first is pertaining to the leaders category as displayed by Reliance. In the second category, we have Tata Telecom and the Seimens Telecom, which are catching up. The third category belongs to the laggards like Crompton Greaves and HFCL
* Again the main deciding factor is the level of collaboration among the organizations. Reliance being the leader, has scored highest in this category.
* Looking at the flexibility, Reliance is better off as compared to other organizations.
The Chemical Segment
In this segment only three organizations (Vam Organics, Max Healthcare and Reliance) responded to the questionnaire.
* Reliance being the industry leader is placed very well in this segment also, as compared to the other two organizations.
* Reliance, again, has very strong processes in place coupled with the collaborative set up which have made it the leader in this category.
* There is still some scope for improvement if we look at the wish score for the industry.
* Max, because of a strong financial back up, is implementing the healthcare setup along with the pharmaceuticals with the help of IT setup. They are investing on the networking and connectivity of the entire chain of healthcare centers. This has made them strong as compared to the Vam.
* Vam organics is yet to break the traditional shackles. Although it is placed neck to neck with other organizations as far as the processes are concerned, but because of weak customer service and the collaborative set up, it has gone down on rankings.
* Looking at the flexibility, it is found that Reliance is quite ahead of the other two competitors because of its strong systems.
Following to the above discussion, the performance of various organizations in different industry segments is summarized in the Table 3. The gap between the industry leaders and the laggards can be clearly observed. It highlights the inconsistency in performance of the organizations operating in the similar environment.
A matrix can be drawn between supply chain score and flexibility score in order to assess the supply chain excellence (Figures 7 and 8). The matrix exhibits the positioning of various types of organizations within an industry segment. The leaders are positioned in High-High quadrant whereas the moderates are in Low-High & High Low - High quadrant. Laggards are the poor performers placed in Low-Low quadrant. We can clearly make out from the analysis of different segments of Industry that:
* We have leaders in all the segments who more inclined towards using IT and internet to their advantage
* The companies which have just implemented IT setup, are placed at the second level.
* The organizations which are laggards, are very less IT savvy.
* The organizations need to be strong in respective areas beside IT to top the group. As observed in all the segments that in the leading organizations all round performance is very good.
A qualitative analysis on various supply chain enabling technologies reveals that web is better option to achieve supply chain excellence, while EDI is found out as the costliest technology for both vendors and the organizations. On the other hand, with comfortable position of bandwidth availability and low infrastructure cost, Web emerges out as the best enabling technology. This is exhibited in figure 7. Web provides the best enabler for smooth transition of the laggards and moderates towards leaders quadrant as shown in figure 8.
Concluding Remarks
The study was carried to understand different variables involved in the efficient and flexible supply chain management. The study used eight different supply chain measures for assessing the effectiveness of the supply chain and three different measures to assess the flexibility of the supply chain. It began by investigating importance of various parameters of supply chain management for different industry segments with help of global weights. The results from the Pareto chart revealed that out of the factors affecting 80% of the supply chain management, majority are associated with the information sharing across the internal and external stakeholders. This indicates the high importance of collaborative set up to enhance the efficiency of supply chain in different industry segments. In other words, irrespective of the industry segment, the collaborative set up is required for greater visibility of supply chain and the greater flexibility. A supply chain-flexibility performance matrix was prepared for various organizations to assess gaps in the supply chain management for the five Indian industrial segments chosen for the study. All the organizations studied have the supply chain and the flexibility index in the Low - Low, Low - High, and High - Low category. The benefits of supply chain can be fully realized in the High - High category. This establishes that the fact that high performance is achieved by a collaborative strategy among different work groups within the company and with the external stakeholders; The web offers a unique opportunity to achieve this. Web is found to be the cheapest and the most flexible media for collaboration and therefore is an apt choice to facilitate the collaborative network. The web based supply chain management is much superior to the other setup discussed in the literature. The effect of the Internet on the supply chain has already hit many of our existing organizations whether we sell goods or services. Without any doubt, the extension of this technology on the service value chain will increase geometrically over the next few years.
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Acknowledgement : Authors acknowledge the suggestion of Dr. Ravi Shankar, UT Delhi.
M.P. Gupta
Dept. of Management Studies
Indian Institute of Technology Delhi
Hauz Khas, New Delhi 110016 (India)
Gautam Nehra
Hummingbird
World Trade Towers,
New Delhi 110 001 (India)
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