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Benchmarking Supply Chain Framework

In todays economy we must make an attempt to shed the flab and be lean & trim. In the present era of increased competition companies are forced to think about the options of cost reduction and improving the customer focus. In other words this has stimulated the search of efficiency and effectiveness in the business processes. Although it seems to be simple, the supply chain and the logistics constitute around 10% of the whole GDP of the world. Studies reveal that logistics & distribution cost is next to material cost in the cost hierarchy. Traditionally logistics and transportation is considered as a function, which enables the company to transport its goods, by cheap and effective modes of transport. By the emergence of the concept of Supply Chain Management the entire business process of logistics has been redefined. The Logistics - one of the essential components of supply chain management encompasses distribution, transportation and inventory management. Logistics is the art of moving material, people and information from one location to another in an effective and timely manner. It commands functions of "store" and "move". Through logistics the right product or right service is delivered at the right time to the right customer. The concept of Supply Chain Management has received significant attention globally and to analyze an SCM framework Lambert, Cooper and Pagh have suggested a three-tier framework consisting of 1) Supply Chain Structure, 2) Supply Chain Business Processes and 3) Supply Chain Management Components. (refer Figure 1)Lambert, Cooper and Pagh provide the theoretical and functional basis for this paper in their articles. The services rendered by "carriers", the ubiquitous transporters of materials in the Bethora-Goa, are analyzed using this network. In this paper the unique system of distributing "top end shied & Bottom end shield to various vendors is benchmarked for the distribution networks. In this paper we identify various SCM elements in the logistics and then identify how these SCM elements can be benchmarked for the various managerial purposes. The Carriers Ubiquitous transporters. In Bethora there are around 13 vendors that work Just like a well-oiled Olympic relay team to process top end shields & bottom end shields for fans. They collect, sort, process, and transport the components to the respective destinations. They do this with absolutely bare minimum documentation and yet rarely has it happened that a production run has been stopped on the shop floor at Crompton greaves. Material is moved in metal container called pallets or wooden boxes. The components originate in the die cast shop and are sent to vendors for machining and then powder coating.. The effectiveness of the process can be ascertained by knowing that there is an occurrence of no mistakes. Supply Chain Structure Supply Chain Structure is a network, which consists of various members of the network and the links between the members. To identify the supply chain structure three structural aspects should be considered: 1) The members 2) the structural dimension and 3) types of process links across the supply chain. 1

Elements of Framework of Supply Chain

Figure 1

Supply Chain Business Process What Processes should be linked with each of these key SC members

Supply Chain structure Linkages between members

Supply Chain Management Components Level of integration and management applied for each link.

Member Identification Of The Supply Chain Of vendors The members of the supply chain are identified as primary and secondary members. Primary members include the business units, which actually perform operations and/or managerial activities in the business activities in the business process designed to produce a specific output for a particular customer or market. Supporting members are business units, which simply provide resources, knowledge, utilities or assets for the primary members of the supply chain. Primary Members The analysis of the Supply Chain of components entirely focuses on the network flow of components- from despatch to the respective vendors. The primary members of the distribution supply chain are identified as follows (refer Figure 2): Collection of the components Sorting done by the dispatch section reporting to QUALIY Assurance. Transportation using the various modes of transport like rickshaws, geeps, tempos &trucks Delivery to the vendors.

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Figure 2: primary members of the supply chain

D I E C A S T I N G

COLLECTION The components are converted on machines And then sent to dispatch secion Collection split up: Collection: 100% by hand operated non-motorised trolleys

SORT The components are sorted based on the vendor to be sent to and status.

TRANSPORTATION The die cast components are carried by the carriers by the most appropriate transportation

are further distributed to work heads

Sorting entirely done in the dispatch section

Split up of the Transportation: By the means rickshaw: 20% By the means of geeps:20% By means of tempos: 40% Other means:20%

Distribution is entirely by vendor based on advise from buyer

P O W D E R C O A T

F A C T O R Y

The COMPONENTS are picked up from the dispatch section. The collection time depends on a) the vendor process chain required to cater to both upstream & down stream processes that are required to satisfy customer need that is picked up from the SSR (DOMESTIC+EXPORT). b). The process time at all process points in the vendor base .c) requirement priority d) the schedule of production plan in house. e) Availability of other components that are required to form kit in stores. f) Distance of the requirement from the factory. g) Availability in die casting section h) Availability of raw materials & dies in the die casting section. The components carry only A symbol (not name) of the processing vendor in colour code apart from an alphanumeric number . Channel /net work design : figure 3.a.1

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figure 3.a.2

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n iv u v o d id al end rs.

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figure 3.a.3

facto . ry

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12 pole High speed bottom shield.

Alcast Pune .

Ishaan Silvassa .

Being sent for machining of components(min 1 Run per day). Tier 1

Vendor 1 siddhivinayak Vendor 2 Goa Ashidara Vendor 3 In house cnc

Being forwarded for powder coating(min 9 runs per Day).

Components pulled by tier 2 vendors as per schedule given by buy er . Vendor 1 aerocoach

Tier 2.

Vendor 2 Laxmi

Vendor 3 Gananath

Vendor 4 Damodar.

Components supplied in sets as per requirement given by buyer i.e, colour,quantity and time of delivery.minimum of 4 runs by i

ndividual vendors.

Production lines. Bethora factory. Baddi factory

A minimum number close to 12000components are transported on a day from the die casting to the respective vendors. The charge for this service is just Rs0.05 per component. Supporting Members The supporting members in this supply chain are identified as the rickshaw, tempo drivers and the vendors with their own means of supporting their logistics needs. .

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D I E C A S T I N G

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P O W D E R C O A T .

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T n o ra sp rtatio n T ed c t h ie as com on ts a p en re carried b th y e carriersb th y e m ta p p os p ro riate tra s o n p rtation

F A C T O R Y

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The precise timing and the frequency of the system aid the vendors to be exact in maintaining the schedule.

The Structural Dimension There are three structural dimensions for describing, analyzing and managing the supply chain: 1) horizontal structure, 2) vertical structure and 3) horizontal position. The vertical structure indicates the number of suppliers within each tier and the horizontal structure indicates the number of suppliers across the supply chain. The horizontal positioning describes the location and the relation between the point-of-origin and the end user. The Horizontal Structure The service rendered by the carriers has two tiers of suppliers and three tiers of customers. Here the component is treated as a product for consideration. (Refer Figure 5) The tier 1 suppliers are the die casting setup that supplies the raw material components. The components are collected by the carriers and the focal organization of the supply chain includes the sorting and transportation. The distribution part is the first tier of consumers followed by the powder coater who are the tir 2 consumer and finally end consumers. 6

Figure 5: primary members horizontal structure of the supply cha Tier 1 suppliers

in End consumers

Tier 2consumers

D I E C A S T I N G

COLLECTION The components are converted on machines And then sent to dispatch secion Collection split up: Collection: 100% by hand operated non -motorised trolleys

SORT The components are sorted based on the vendor to be sent to and status.

CARRIER VEHICLES

TRANSPORTATION

DISTRIBUTION

The die cast components are carried by the carriers by the most appropriate transportation Tier 2 suppliers

are further distributed to work heads

Tier 1 consumers Distribution is entirely by vendor based on advise from buyer

P O W D E R C O A T

F A C T O R Y

Sorting entirely done in the dispatch section

Split up of the Transportation: By the means rickshaw: 20% By the means of geeps :20%

By means of tempos: 40% Other means:20%

Focal organisation

The Vertical Structure The vertical structure of the carriers is the wide clientele of their service. There are about 12000 components transported by them in a day. There may be an addition or deduction as per the seasonality or the time in the month. This accumulates to a change of around two thousand components day. The tier 1 consumers of the components include the machining vendors who deliver the components to their respective production work heads.. Their plan of action is to machine the component keep track of the powder coater destined to which each component is assigned. This is attained by their superb cognitive memory structure. Refer figure 6.

F ig u r e 6 : v e r tic a l str u c tu r e of su p p ly c h a in

T ier 1 s u p p liers

F o c a l o rga n iza tio n .

Z1

D I E C A S T I N G

S O R T IN G

T ra n s p ortation b y rick sh aw s

T ier 2 c o nsu m eF in a l c o n su m e r rs

Z2
Z3
T ra n s p ortation b y g e ep s

S O R T IN G
Z4 Z5
T ra n s p ortation b y tem p os

T ier 1 cu sto m ers

S O R T IN G
Z6 V EN DO R

P O W D E R C O A T

F A C T O R Y

S O R T IN G

T ra n s p ortation b y tru ck s

S E C T O R O F A C T IV IT Y

Types Of Business Process Links In this supply chain concept of vendors the level of integration is situational and varies from process to process. Since there is no written agenda behind the boundaries of action of the process and its constraints cant be strictly demarcated. But the business process links are well managed, even if there are some discrepancies, which can be avoided by further refining run this system. The focus is to identify the number of process links, which are to be managed effectively. The character of these links and the contextual setting affect the amount and the type of the relationships optimal for a focal organization. The emphasis is given for the closer relationships and partnerships that are implemented with key suppliers or customers in the case of large corporations. As companies focus on 8

9 fewer suppliers, the vertical structure becomes narrower. Managing all the relationships, as partnerships would be time consuming for the organization. Supply Chain with many tier 1 customers or suppliers require much of the companys resources and the limit the number of process links that can be integrated and closely managed. Different types of business process links can be identified: 1) managed process links, 2) monitored process links, 3) not managed process links and 4) nonmember process links. Managed Process Links The process integration with the focal organization and the suppliers are decided by the managed process links. The carrier service forms the managed process link of the distribution system. The bottleneck constraints for this process link are 1) Weather, 2) Delay in loading of components, 3) material produced but child items not in SAP 4) Traffic congestion outside die casting area due to poor traffic handling by security guards 5) distribution not clearly informed by buyer to die casting .6) festivals 7) autocratic behavior of security guards. Here the system of carriers can be compared with service to order and just in time philosophy. The logistics service is rendered for Crompton Greaves as & when required. They dont plan for the extra additional run in advance. There is an approximate variation of around 1000 to 3500 components every day. The space allocation for its carriage is not pre-planned, as the exact variation is not known for them. The just in time philosophy reduces the unnecessary burden of the large carriers and reduces wastage of space. Monitored Process Links Monitored process links are not as critical as the managed process links. Here they include 1) Material Handling Considerations, 2) Packaging& palletisation and 3) Flexibility. Though these factors dont contribute directly for the process, they have a significant role in this system. The component is handled under the consideration that small impact wont create significant damage to it. There is a secondary packaging provided for each of the components is the hood of the vehicle it is placed in. There is a buffer provided for this type of activities. Not Managed Process Links These are the process links, which are not in direct relation with the distribution of components. They include the quality check at out going stage & advance count by security or the count free system of material moving system. It also includes the collection activity by the end customer who rejects the powder-coated component that is fully processed. These activities are not in the direct control of the materials management executives and hence are nonmanaged process links. Still the quality and the customer satisfaction of the distribution service are affected by these secondary links. Non-Member Process Links They are defined as the competitors for the existing system of distribution. Since the distribution network and the service of the carriers dont have any competitors the non-member process links is irrelevant at this context. Chain of Business Processes

10 Identification and the management of the constituent processes are the prerequisites for the successful SCM. When we emphasis on the constituent processes we have to define the same. They are defined as the activities designed for action with a focus on the end-customers and on the dynamic management of product flows, information flows, cash flows, and the flow of knowledge or ideas. Considering the supply chain management we have eight key interfirm processes: customer relationship management; customer service management; demand management; order fulfillment; procurement; product development and commercialization; and returns. Customer relationship management It identifies key customer target markets and develops and implements programs with key customers. Key customer target markets for the carriers are the end users of the cycle. They include the stores, production and logistic. The time of delivery of the components is between 8.am to 5. p.m. to the end customers. Once the material is fed on to lines the empty crates of plastic are collected and shipped back to tier 2 consumers (powder coating vendors).. The service levels for this level is maintained constant even if there are minor changes in service levels for the level 1 customers as they can adjust accordingly and serve the end customers. Customer Service Management Customer Service Management provides the single source of customer information, real time information system with current order, production and distribution information. In the case of carriers this information is real time. They plan for their day-to-day collection on the basis of the information they already have. Though in each vendor set up there is a chance of variation of 2 to 3 product changes/colour changes their system can accommodate that change in the transported volume. Demand Management Demand management balance customer requirements with supply capabilities. Though the distribution system is capable of handling the major variation of the demand, always there are precautions for the additional supply. They arrange for more number of runs for the handling of such situations from the nearer zones of action. The seasonal variation in the quantity of components carried is also accommodated by the size of the vehicles. Order Fulfillment The first priority of any service is to provide timely and accurate delivery with a high degree of order fulfillment. For the end customers the order fulfillment is 100%. Around 8 carriers deliver 12000 components everyday for 320 days a year and take the empty crates & pallets back. They make one mistake in 12 months. This means there is 0.26error on every million transactions. This is thus a six-sigma performance for the percentage of correctness. Manufacturing Flow Management It includes the customer-based service with flexible distribution systems, also in this case with the right flexibility of the timings. In case of the carriers this issue arises when a vendor is temporarily unable to process the components. They collect the details of the change in advance and respond for the change as and when needed. Procurement Procurement focuses on the management of the relationship with the suppliers. Here the components are procured from the tier 1 supplier that is die-casting. The supplier relationships are maintained by the setting up of the base near the factory. Here each carrier is entitled to collect components as per scheduled production of the linking tier 2 10

11 supplier and customers. He takes care of the procurement issues. The pick and pack concept is used where the secondary packing of the component is done by the carrier. The details the customer is identified by the colour coding system on the component. Product Development And Commercialization Since the component doesnt focus on the product development it doesnt need any significant mention here. Some of the vendors having other business interests use the sides of carriers for small levels of promotion. This could fetch some additional mileage for their other products. Returns The cheaper and the effective distribution attract a lot of vendors especially in other component groups for the fan manufacture to adopt this carrier philosophy. Exact timing and the quality of service rendered by them have contributed for the success of this distribution system. Benchmarking carrier Distribution System, for other vendor factory logistics. The challenges for vendor factory logistics can be analyzed on the basis of costs, efficiency, inventory levels and the service levels. Improving supply chain efficiency and effective-ness are the ongoing challenges for any industry. Issues under consideration for vendor factory logistics include: Rising logistics costs. Increased responsiveness of the vendor factory logistics Supply Chain. Their supply chain has become more demand-driven, with order-to-delivery cycles dropping. Decreasing Inventory Levels. Focus on Perfect Order Service Metrics. Components of the perfect order are order completeness, ontime delivery, damage-free orders and invoice accuracy. They are viewed by buyers as important customer service metrics. Low Accuracy in forecasting the demand and supply requirements.

Emerging supply chain challenges for most companies 1. 2. 3. 4. Improving on-shelf Availability of Products: On-shelf availability is becoming a critical issue for manufacturers. Synchronizing Data: The current system for exchanging data among trading partners continues to produce inefficiencies in supply chain, including order errors, invoice discrepancies, delays in item introductions and out-of-stocks Increasing the Flexibility of Ordering and delivering: Most retailers and wholesalers say they are looking for increased flexibility in ordering and delivering. With the shortening of order-to-delivery cycles, manufacturers will continue to face additional pressure on their supply chains and resources. Improving Internal Cross-Functional Collaboration: Collaboration with external partners is hampered by manufacturers own ability to collaborate internally especially between the Logistics, quality assurance, manufacturing and Sales/Marketing functions. 11

12 Customer teams are helping companies to improve the alignment and integration between different functions. These teams are cross functional by design and seek to balance cost and service tradeoffs by collaborating internally and externally. Why Measure the Performance of Logistics? Measuring and monitoring logistics costs helps companies improve profitability by assessing the value of various business transactions with customers and suppliers. Measuring the performance of the logistics operations is a key step toward reducing costly inefficiencies and maximizing opportunities for growth. Logistics measurement is also critical from a cost-savings standpoint. For an average company, logistics costs represent more than 10 percent of net sales. Measuring and monitoring these costs helps to achieve the following goals: Improving profitability by reducing operating and administrative costs Improving profitability by carefully assessing the value of company activities with customers and suppliers. Increasing revenue growth by providing the level of customer service that keeps current customers satisfied while attracting new ones. Identifying differentiating product and service offerings that will improve customer service as well as revenue opportunities. Determining whether or not significant operational improvements are necessary. Logistics Costs As retailers push more responsibility down the supply chain to manufacturers and the demand for shorter order-todelivery cycles increases, logistics costs for manufacturers continue to rise. The decrease in logistics expenses was primarily accomplished through: Bigger shipping points More direct-from-plant shipments Moving processing centers closer to customers Increasing order and shipment sizes

The Largest Logistics Costs are in Product Distribution and Material Processing and Conversion. Other functions companies included in their logistics management were Customer Service, Planning, Forecasting and scheduling and Information Processing. In the possible reasons for the significant increase in logistics costs include: A more dynamic supply chain, with decreased response time to retailers required delivery appointments. Higher service level expectations from retailers in terms of on-time delivery and order completeness Conflicting incentives and insufficient and inaccurate information between trading partners, resulting in a number of operational inefficiencies. Increased array of customized supply chain services offered by manufacturers.

In the case of carrier the logistic costs essentially include the cost of transportation by road. Though they have a dynamic supply chain system in force which serves the entire network of customers, they are able satisfy the higher level of service at nominal rates. This is achieved by the Cost-cutting initiatives projected as follows: 12

13 Collection and transportation of components in standard large sized crates & pallets that enable the carriers to reduce the effort and rates of transport. Though they are low cost crates they are the best means of carrying the components. Implementing low cost information exchange by simple and robust coding systems specific to the components enables positive recall. Transportation of the components Direct-from-die-casting to destined vendor eliminates the use of intermediate warehouses and hence the corresponding warehousing costs. In some cases the transportation is done by the third party, they avoid maintaining redundant transportation fleet during the periods of low demand.

Supply Chain Responsiveness The growing need for a more responsive supply chain has also contributed to increased logistics costs. In many cases, the retailers have stepped up demand for more frequent and on-time deliveries. Some retailers have even implemented late delivery charges and other supply chain penalties for manufacturers. In recent years, the order-to-delivery cycle has dropped drastically. The order-to-delivery cycle is defined as the elapsed time from receipt of customer order to delivery of product to the customers designated location. Although the order-to-delivery cycle is shortening and the supply chain is becoming increasingly responsive Considering vendor to factory logistics, some possible root causes for the drop in on-time delivery include: Congestion at customers factory affecting receiving turnaround. Over-scheduling at receiving point on certain days due to lack of visibility on inbound loads and resulting impact on dock operations. Space shortages at factory requiring use of outside warehousing Considering the distribution of the components, the following methods they practice rate their supply chain responsiveness at its best. The three level of the sorting they follow, i.e., one from the originating minor sector(die casting) to the major sector(collection), the next from the major sector (sorting sector) to the destined minor sector(machining vendor) and the last at the minor sector(powder coater) based at the destination makes them to avoid the use of warehousing and hence the related complexity. The collection and sorting system they have implemented, enable them to optimize the scheduling of distribution. In the sorting method they use only the required colour &type of components meant for the destinations in the final sort sector are transported to that sector. This reduces the effort and time in sorting and hence avoids the redundancy.

Inventory Levels Considering logistics scenario, the inventory location in various aspects plays an important role in determining the profits in the balance sheets. The prime concerns in this issue include the storage of Finished goods at plant warehouse Finished goods at distribution center Finished goods at overflow facility

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14 Most of the companies are tackling this issue by implementing customer-focused logistics policies. They are essentially focusing on the change of their logistics network. The prime considerations include bigger and better shipping points for the company and making the shipments directly from the plant. This would cut down the storage costs and the inventory holding costs drastically. They are also going for service-to-order profiles for the transport. Custom made solutions are made, based on the customer requirements Current strategies employed for the distribution include: A centralized distribution center location strategy, with distribution centers farther away from customers or Move distribution centers closer to customers and implementing a decentralized strategy.

Considering the distribution strategies followed, they follow decentralized collection and distribution; and semicentralized sorting at pre-defined major sectors. These major sectors are selected based on the volume of the dabbas dealt in that particular region. This has helped to move the distribution centers closer to the end customers thus improving the customer service quality as the response time is lowered. Since in the network tier 1 customers are closer to the end consumer, even if there is a delay in the supply of the components to them, they are able to exactly identify the time lag and adjust the final distribution process so that they can deliver the components within the appointment time. This effect can be identified as an adaptive feedback with real time information system which the companies involved in the logistics of components that can easily benchmark for their distribution processes. Perfect Order Components Perfect Order components in the distribution and logistic industry are based on the bottlenecks for the customer service which are identified from the key indicators in the logistic industry like the Damages/returns, On-time delivery, Order completeness, Order cycle time and the Transaction costs. These factors essentially determine the efficiency and effectiveness of the delivery made. In the network the Perfect Order components are identified and are incorporated into their process to meet their perfect service requirements and demands. By providing the primary and secondary packaging facility; and also by the bulk transportation the risk of damages and returns are minimized. Unwanted storage is avoided and hence the components are promptly delivered at their best quality to the end customer. The network focus on the direct delivery instead of storing at intermediate point reduces the time delays within the distribution network. The customized focus of the network where the component are able to identify the originating dies and the end customers, provide a competitive advantage in the accurate end-to-end distribution of thecomponents. The low cycle time for the whole distribution for the components enables them to avoid the deterioration of the quality of the . The inherent knowledge of the loading patterns & systems and the reliable transportation network help them to achieve the current 6-sigma level of service performance. 14

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Conclusions In this paper the understanding of the extensive supply chain framework from Lambert, Cooper and Pagh has been increased by applying the framework in a case environment. The critical points considered for this case are Chain of Business Processes, Customer relationship management, Customer Service Management, Demand Management, Order Fulfillment, Procurement and Returns. These points have been analyzed by studying the service network of the carriers of bethora whose salient features include Transportation Strategy, inventory Strategy and Location Strategy. Following the framework analysis a benchmarking study was done on the logistics of vendor-factory to identify critical areas in the where improvements could be made. The benchmarking study focused on parameters like logistics costs, responsiveness of the Supply Chain, Inventory Levels, Perfect Order components of the logistics network. The benchmarking study has provided us with information on the critical aspects of an l logistics network of a company. The study has highlighted the significance of an efficient logistic network on the operational and strategic frontiers of an organisation. To increase the usefulness of this framework for both academic and managerial purposes further development is needed.

About The Author

Sashi Prabhu is presently working as AGM-Operations in the Fan Division of Crompton Greaves Ltd at Bethora Ponda Goa. He has worked in auto, pharmaceutical and consumer durable industry in operations & marketing. His major research interest includes lean manufacturing, supply chain management, fuzzy and neural decisions in supply networks, adaptive feedback networks agile manufacturing, queuing scenarios in optimizing network supply chains and now into management,life improvement and behavioural related issues. He is a music, beach and senic beauty lover .

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