SUPPLY CHAIN MANAGEMENT PRACTICES IN INDIAN PROCESS INDUSTRY B.

Raja Shekhar, University of Hyderabad, Hyderabad, Andhra Pradesh, INDIA P.Umamaheswari Devi, Adikavi Nannaya University, Andhra Pradesh, INDIA ABSTRACT Process industries make primary commodities that are fundamental to our everyday life. The typical features and characteristics of the asset intensive process industries sets its apart from other industries. The large production volumes and low profit margins and complex supply chain pose significant challenges to the companies in this industry. They are failing to realize enormous potential value in the supply chain- an area that represents up to major percent of the companys cost structure throughout the system. In this scenario an attempt was made to examine the practices of supply chain management in Process Industry by comparing them with the best practices with the help of certain metrics to bring in improvements in the existing system. Key Words: Supply Chain Responsiveness, Supply Chain Reliability, Supply Chain Operations Reference Model. 1. INTRODUCTION

Process industries are businesses that add value to materials by mixing, separating, forming or chemical reactions. Process industries include a broad spectrum of industries involving extraction of raw materials, their transformation (conversion) into other products by means of physical, mechanical and /or chemical processes using different technologies. Process industries consist of petroleum, chemicals, pharmaceutical and other industries that provide products from a chemical process. The process industries are particularly vulnerable to plant process and product failures. Among the main reasons are the complexities of technology involved the range of products and the often subtle nature of compositional changes process shifts and hidden product flaws (Witherell 1991.) Indian process industries also face major challenges especially with respect to inventory related issues. Timely movement of goods across the supply chain is very important in process industry and any delay results to inventory build ups and thus increased costs. The typical factors like: Continuous manufacturing of products, Sophisticated and extremely capital intensive manufacturing plants, Production planning and raw material specification, Multiple, interdependent products, Complex transportation logistics and also the complex supply chains make it difficult to manage the supply chains in the process industry. More work needs to be done in process industry supply chains, since they have characteristics that distinguish them from supply chains, of discrete manufactured products. The petroleum industry is handling products with long life cycles, i.e functional products. The massive scale at which these companies operate makes it all more important to bring about efficiency in the supply chain. The Indian Paint Industry is characterized by high Working Capital requirements, Low Fixed Asset requirement, Seasonal nature of demand, and High Entry barriers in the form of a Distribution network. As compared to other industries, process industries like chemicals are in greater need of supply chain implementation. They still lag behind others in terms of integration, degree of collaboration, responsiveness, and sophisticated use of IT(Tomkins,2003). Thus, implementing SCM in these firms is a necessity. The pharmaceutical supply chain like any other industry has a challenge to streamline the flow of products, information and funds from R & D stage to sourcing to ingredients and manufacturing to distribution to final customers. Pharmaceutical supply chain is so different from others in terms of social responsibility. In order to ensure close to 100% product availability, many industries have taken the strategy of keeping a huge inventory in their supply chain as pharmaceutical products margin is remarkably high but the lifespan of patents is limited so logistics cost shares 45 to 55% among other costs in the pharmaceutical value chain, as pharmaceutical industries are willing to keep supply at any cost. For these products an efficient supply chain is very much required. The process industry has lagged behind its counterparts in other industries with respect to implementation of Supply Chain Management (SCM). This industry is facing major challenges when it comes to the supply chain

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management. In fact, looking at the scenario, as it is prevalent today, it is clear that there is a strong need for SCM in this industry. 2. LITERATURE REVIEW Research conducted by AMR research validated the hypothesis that companies with superior supply chain performance achieve better Earnings per Share (EPS), ROA and profit Margins than their peers. The analysis based on the results of a benchmark study demonstrates that companies with better perfectorder ratings tend to have Higher EPS, Better ROA, Higher Profit margins. According to a new study released by Aberdeen Group and cosponsored by Supply chain Consultants the report entitled : Supply Chain Costs cutting strategies: How Top Process Performers take radically different Actions also found that best in class Companies are strikingly ahead of their peers in achieving their transformation goals and are much more aggressive in adopting Supply Chain Technology as part of their improvement initiatives .They surveyed 74 companies in the process industries .Companies in these industries now widely realize that they must restructure their supply chains to reduce costs and maintain their customer service edge. A majority of study respondents plan to upgrade their technology as part of a supply chain restructuring, with 82 percent of the companies surveyed having spending plans for new Supply technology projects in 2007. A study of the process industry of India has revealed that the topmost competitive priority for a company is quality ,whereas the least important priority is innovation and flexibility.(Dangayach and deshmukh,2001).A study of the Indian industry using eight different supply chain measures for evaluating effectiveness and three measures for evaluating flexibility of supply chain has been used to show that various firms had the supply chain and flexibility index in the low, low, low-high and high low category(gupta and nehra,2002).These should move to the high- high category to fully utilize their Supply chain potential. 3. OBJECTIVES The present study was undertaken with the main objective of examining the current practices of Supply Chain Management followed in Process industries in India and comparing them with the best practices. The other objectives are 1) To study the degree of customer satisfaction in these Companies 2) To identify the status of Information Technology implementation in these Companies. 4. METHODOLOGY The data was collected from both Primary and Secondary sources. In the initial exploratory stage, extensive literature review was made to identify the research gaps and secondary data was collected to establish basic information about supply chain metrics. Based on the above information a well structured questionnaire was prepared and mailed to various organizations. The questions were directed at examining the current practices of Supply Chain Management followed in Process industries in India. In order to measure the performance of the supply chain and compare them with the best companies SCOR (supply chain operations reference model) was used. The questionnaire was divided into four sections. Performance attributes like supply chain reliability, supply chain responsiveness, supply chain flexibility, supply chain cost and supply chain asset management were used in the first part of the Questionnaire. Information is a Great enabler for SCM and it is very important to study issues related to IT in SCM to know its impact on the practices and performance of the companies so questions relating to these aspects were included in the second section of the questionnaire. For effective performance measurement, supply chain metrics must be linked to customer satisfaction (Lee and Billington, 1992.) This measurement is needed to integrate the customer specification in design to set the dimensions of quality for cost control and as a feed back for the control of process. So lastly certain questions relating to this aspect were covered in the third section in order to know the strategies adopted by these companies for effective customer satisfaction. Purposive sampling method was employed. A sample of 20 companies across the major centers was contacted for this study. Of the total companies contacted during the study, over 80 percent of the companies found to be having a turnover of more than Rs.30 Crores.

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5. ANALYSIS OF THE RESULTS What does not get measured does not get done This adage is also true for Supply Chain Management. The competitive environment of several industries now call for the performance evaluation of complete supply chains (from suppliers supplier to the customers customer) The main reason for poor performance of supply chains is the lack of a measurement system(Morphy, 1999)Performance measures have two main effects. First of all they can be used as a good description for the as is situation. Secondly they can be used to set performance goals (Myeretal, 2000). As an indispensable management tool, performance measurement provides the necessary assistance for performance improvement in pursuit of supply chain excellence..SCOR is now recognized by the 800 member companies of the supply chain council as an effective tool kit for companies wanting to upgrade their supply chains for strategic advantage. SCOR is a cross industry model that contains standard process definitions and metrics matching supply chain processes against best practices. The SCOR model contains more than 150 key indicators that measure the performance of supply chain operations. These performance metrics are derived from the experience and contribution of the council members. As an industry standard it also facilitates internal supply chain collaboration and horizontal process integration by explaining the relationship between processes. 5.1 Supply Chain Reliability In order to understand the consistency of the supply chain in delivering the right product to the right place, at the right time, in the right condition in the right quantity to the accurate customer certain metrics like delivery time were used. Important aspect of delivery performance is on-time delivery. This determines whether a perfect delivery has taken place or not and it acts as measure of customer service level. A survey conducted by Gelders etal. (1994) in Belgium shows that tremendous opportunities exist to improve the supply chain performance based on lead time reduction in the delivery process. The study revealed that out of the companies contacted in almost 56percent of the cases the delivery time was 4-6 days and in only 20 percent of the cases there was on time delivery i.e. goods were delivered by the promised time in right quantity and quality and in 58 percent of the cases the goods were delivered in the desired quality as required by customers. However, only in 40percent of the cases supplies were made as per the quantity ordered. 100% on time deliveries seems to be in the case of Shasun Chemicals & Drugs Ltd, Tamilnadu Petroproducts Ltd, Aventis Pharma Ltd, Deepak Fertilizers & Petrochemicals Ltd, and Madras Fertilizers Ltd. On-time delivery seems to be a rare happening in the case of pharma companies contacted during the company. 5.2 Supply Chain Responsiveness Responsiveness can be defined as 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 (Holweg, 2005, p. 605). The responsiveness of supply chains to changing customer requirements and their overall efficiency are important issues in supply chain design and management. To identify the rate at which the supply chain provides products to the customers, Procurement time and Production Cycle Time metrics were used. The survey revealed that in 33percent of the cases Production Cycle time was 1-3 days while in 36% of the cases it was above 10 days While Procurement Time i.e. the time elapsed from the time manufacturer places an order to when he receives it in 43% of the cases was within 1-10 days and for about almost 36% it was above 16days. Procurement time is relatively higher in the case of pharmaceutical companies when compared with that of chemicals and petrochemicals industry. 5.3 Supply chain Flexibility Flexibility, which is seldom used in supply chain analysis, can measure a systems ability to accommodate volume and schedule fluctuations from suppliers, manufacturers and customers. Indeed flexibility is vital to the success of the supply chain, since the supply chain exists in an uncertain environment. To understand the alertness of the supply chain in responding to market place changes, Supply chain response time metric was used and it was found that in almost about 45 percent of the companies they could meet up to 10 percent of the demand surge when there is an unexpected increase in demand and around 8 percent of the companies contacted reported that they could meet up to 50 percent of the demand surge when there is an unexpected increase in demand. Supply chain flexibility is relatively higher in the case of pharmaceutical companies.

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5.4 Supply Chain Costs As far as costs associated with operating the supply chain in process industries were concerned in about 44percent of the companies the total supply chain costs were 6-8 percent while in 39 percent of the cases it was 1-5 percent. Out of the total supply chain costs transportation costs was the highest followed by warehousing costs and inventory. According to Thomas and Griffin (1996) the single largest cost component of logistics is transportation cost often comprising half of the total logistics cost. 5.5 Supply Chain Asset Management Efficiency: An organizations efficiency is determined on the basis of asset management. Cashto-cash cycle time, Work in progress Inventory, finished goods Inventory and Inventory Turn over metrics were used for measuring asset management efficiency. Raw material Inventory in majority of the cases i.e70 %is held for 15-21 days, while Work in progress inventory in 74percent of the cases is held for less than a week and finished goods inventory in 65 percent of the cases was held for less than 7 days. Cash to Cash Time: The number of days between payment of the raw materials and payment of the product is above 90 days in 35percent of the cases while for 33 percent of the cases it was less than 30 days. Inventory Turn over: When the companies were asked about the speed with which the goods are moved and are replenished in the system it was found that in 62% of the cases the inventory turn over is in the range of 11-15 days. 5.6 Implication: SCOR model was very useful in identifying the performance gaps in the companies. The survey revealed that the following performance gaps (the actual gap between the best performing companies and the average performing companies with regard to supply chain i.e. desired performance Vs actual performance) existed across companies contacted. As far as Supply chain Delivery Reliability there is a large scope for improving the on time deliveries. Similarly, percent of supplies made as per the quantity ordered and on desired quality also needs attention, especially by companies in chemicals and petrochemicals segment. There is a wide gap in the supply chain costs between the best performer and the industry average so the companies must focus on reducing the transportation costs, Costs of damages and other costs. It is especially high in the case of chemical companies, when compared with pharmaceuticals. This is primarily due to huge transportation cost, especially outbound transportation cost, which on an average accounts for around one third of the total supply chain cost. With respect to supply chain asset management efficiency there is a high chance for improvement in the case of finished goods inventory. There is a huge gap between the industry average and the best performers with respect to Inventory. Currently the companies are bearing this cost. Though margins are high in process industries, inventory turnover clearly lags. Error in demand forecasting in process sector is very high contributing to most of the supply chain inefficiencies. To overcome these problems companies would need to increase their forecasting accuracy, reduce skew ness in sales and increase information availability. In order to increase the speed of the supply chain the procurement time has to be reduced. The pharmaceutical has got a tremendous opportunity to lower costs, improve asset management and enhance customer service by implementing supply chain best practices such as CPFR, Outsourcing, VMI and Lean thinking. 5.7 Information Technology: An effective supply chain requires smoothly operating information system. The Internet has been a phenomenal technological breakthrough and has revolutionized the way business is run. All Indian Companies are online now with details of their products and themselves. In spite of the high degree of awareness and action being taken Indian companies still have a long way to go before online tracking, order processing transactions, vendor management, inventory visibility can be put into practice. Results: Most of the sample companies (70 percent) agreed that they have integrated supply chain software solutions implemented in the company. About 30 per cent of sample organizations disagreed that the software development activity carried out in the company is for developing custom modules. Most of the companies accepted that integration of departments through computerization is required in the company in order to improve the efficiency. Only 10 per cent of sample organizations totally disagreed that adoption of e-commerce technologies in company will improve communication, speed of transitions and efficiency of the departments in the networking environment. Most of the

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companies said that they are always using E-mails Faxes and Internet and are not widely using Electronic data interchange (EDI), Bar-coding and scanning and Intranet. Few organizations do not have a website. Asian Paints: It is considered the most networked paints company in India. It has direct tohome painting services in select cities. Another innovation is its Help line. Nicholas Primal: is using the hub and spokes model to reduce the finished goods inventory. Aventis has initiated several measures to spruce up its operations. One of the major initiatives has been on the plant cycle time reduction. In the chemicals business today, customers have their own option of suppliers with high expectations. It was also found that these companies are working with fragmented, disparate systems. As a result, they have limited visibility and control, and spend too much time pulling information together. These factors lead to delays, inefficiencies, and the inability to respond quickly to changing customer needs. To succeed in this environment, chemicals producers and their supply chain partners need to react quickly to changes in customers orders and market demand. They have to increase efficiency, optimize the use of resources and equipment, and reduce inventory levels and provide increasingly better service and need to share near real-time information across the supply chain, 5.8 Customer Satisfaction: Customers are the core of any business. Customer satisfaction is very important for remaining competitive in todays world and the key for the survival of the organization. There are many studies available in the literature which identify and classify the logistics or customer service elements. Sahay etal. found that enhancing customer service /satisfaction outscores other supply chain objectives like expanding revenues, reducing inventory costs lower product cost and improving on time delivery in terms of their effectiveness to the SCM.(sahayetal.2001) Asian Paints has an inimitable customer interface called Color World.Cipla: It emerged as one of the most preferred companies for its service quality. The companys emphasis on quality of service can be traced to its unique approach to distribution. Results: As far as Customer service and satisfaction is concerned the policy of no compromise strategy is followed in 80 percent of the sample organizations. Only 70percent of the sample organizations are ready to adopt any new concept or technology that would increase customer satisfaction and only about 60 percent agreed that they will make every possible change in the supply chain practices with the changing time to increase expectations of customer. The Concept (COPIS) customer, Outputs, Process, Inputs, Supplier) is not followed by 40 percent of the sample companies. The companys supply chain addresses the issue of customer desirables (critical-to-quality) at each node of its link in 70 percent of the sample organizations. The Standards for satisfaction in 60 percent of the sample organizations are defined by customers. It was also found that still some 40 percent of the organizations have not adopted latest trends like VMI (Vendor Managed Inventory) EDI (Electronic Data Interchange) and FGP (Factory Gate Pricing) for effective Customer Satisfaction. 5.9 Limitations and Future Research: Gathering of data was very difficult as many companies though they were practicing Supply chain Management were not aware of the metrics they did not have any proper documentation and in many instances companies were reluctant to provide information. Many of the companies were not clear about Supply chain cost. Readily available information on global trends with regard to supply chain performance metrics is very much limited. For Future Research: A depth analysis of best performing companies have to be done to identify the reasons for being the best performers and how they could achieve these standards and also know about their failures so that preventive steps can be taken in the future. Further research work should also focus on assessing the current level of Supply chain Integration. 6. CONCLUSION There is a very good potential for improving the supply chain efficiencies in the Process Industry. The companies in this sector need to re-think their strategies and align with the chain partners to provide better customer service and to gain a business advantage. For effective management in a supply chain, measurement goals must consider the overall supply chain goals and the metrics to be used. Another source of improvement is introducing proper performance measurement system for ware house operations as many companies are not measuring their performance which may lead to multiple impacts on the efficiency of the supply chain and also involve all the people in the chain so that they get a feeling of ownership which means seeking opinions and allowing them to experiment with ideas while keeping the process transparent.

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REFERENCES Baritha M.Beamn, Measuring Supply chain Performance, International Journal of Operations & Production Management, Vol.19, No.3, 1999, pp.275-292. Enrico Camerinelli Measuring the value of the Supply Chain: A Framework, Supply chain Practice Vol. 8 No.2 .2006. Pamela Danese, Pietro Romano,Andrea Vinelli,Sequences of imprioivement in Supply Networks:Case studies from the Pharmaceutical Industry, International Journal of Operations & Production Management,VOl. 26,No.1,2006 Performance Measures and Metrics in a Supply Chain EnvironmentA.Gunasekaran, C.Patel, E.Tirtiroglu, International Journal of Operations & Production Management Supply Chain Management Practices in Asia Pacific Today, International Journal of Physical Distribution & Logistics ManagementVol.26, No.10, 1996, pp.79-95 Author Profiles Dr.B.Raja Shekhar earned his Ph.D at Kakatiya the University in 2002. Currently he is a Reader of School of Management Studies at the University of Hyderabad, Hyderabad, India. P.Uma Maheswari Devi earned her M.Phil at Andhra University in 2005. Currently she is an Assistant Professor of Department of Business Administration at Adikavi Nannaya University, Rajahmundry, India.

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