Connecting operations to applications

Updated: Dec 26 2005, 05:30am hrs
In an age of intense competition, supply chain efficiency and adaptability are not just requirements for success. They are necessities for survival. This is especially true for India's emerging and promising retail marketLogistical challenges, constantly changing consumer tastes, evolution of retail formats, high cost and availability of real estate typify the growth characteristics of the market. Effective supply chain management holds the key to push breakthrough growth in a crowded marketplace and better customer responsiveness.

High consumption patterns driven by disposable incomes, lifestyle shifts and availability of a wide range of brands are dictating the high-growth of different retail formats in India. No wonder, Indian retail players are under tremendous pressure to make the supply chain of retail more efficient in order to deliver quality, selection and service to consumers. Retail customers such as Barista, Caf Coffee Day, Hariyali, Pantaloon Retail India and Vishal Megamart, have chosen SAP solutions to enhance their critical business processes. These processes include global sourcing, distribution, transportation and logistics, product innovation, inventory visibility, financial transparency, compliance and point-of-sales data management. "As we continue to grow our presence through the region, we needed a single, enterprise-wide IT platform to manage our increasingly complex operations," says Chinar Deshpande, CFO, Pantaloon Retail (India) Ltd.

The supply chain management (SCM) market in India, albeit in a nascent stage, has relevance to both service and manufacturing organisations. According to Gartner, annual revenue from licenses for supply chain management software in the Asia Pacific region will reach $129.8 million in 2005 and $184.7 million in 2009. The CAGR for 2004 to 2009 is forecast to be 8%. Closer home, some of the verticals that have gone in for SCM solutions include e-manufacturing, automotive, FMCG, retail, oil and gas. Manufacturing and automotive sectors have been the leaders in adopting SCM solutions in India. Be it auto giant Mahindra & Mahindra, Korean consumer electronics giant LG Electronics or FMCG major Hindustan Lever, the adoption of SCM solutions has resulted in reduced inventory and judicious optimisation of the entire supply and distribution chain. In future, FMCG and retail sectors are likely to see an increase in SCM adoption, says Gartner.

Typically, supply chain management is the practice of coordinating the flow of goods, services, information and finances as they move from raw materials to parts supplier to manufacturer to wholesaler to retailer to consumer. The extended supply chain for a given company may also include secondary vendors to their immediate vendors, and the customers of their immediate customers. This process includes order generation, order taking, information feedback and the efficient and timely delivery of goods and services. "Supply chain is a complex network, which needs lot of monitoring and administration due to its complex nature," says SSA Global India country manager Alok Tandon.

"SCM solutions help your organisation transform a linear supply chain into an adaptive supply chain network, in which communities of customer-centric, demand-driven companies share knowledge, intelligently adapt to changing market conditions, and proactively respond to shorter, less predictable life cycles," says Peter Zencke, SAP AG executive board member. "The design and operation of an effective supply chain are fundamental to the successful operation of enterprises," he adds.

SCM includes the activities of supplier management, purchasing, materials management, manufacturing management, warehousing, material handling, transportation, and physical distribution and customer service. A number of innovative approaches and best practices (See box) are required for balancing the objectives of the partners of the supply chain and the requirements of customers, as there are many conflicting goals such as high customer service, low inventory, low unit cost, etc.

Through continued spending on research and development, or through acquisition, major players like SAP, Oracle and SSA Global -- as well as ERP vendors that specialise in the mid-market and specific industries -- are making significant inroads in the SCM arena. According to Mr Zencke, there is growing preference for supply chain solution that integrates collaboration, planning, execution, and coordination of the entire supply chain network -- empowering enterprises to:

Synchronise supply to demandBalance push and pull network-planning processes. Replenish inventory and execute production based on actual demand

Sense and respond with an adaptive supply chain network Drive distribution, transportation, and logistics processes that are integrated with real-time planning processes.

Provide network-wide visibility, collaboration, and analytics Monitor and analyse an enterprise's extended supply chain.

The bottom line: Indian enterprises are moving up the value chain and looking at SCM solutions to improve their business and operations processes.

Best practices in SCM

Today's competitive environment requires supply chains to be agile and adaptive. According to R Seshadhri, executive director of Take Solutions, a Singapore-based SCM firm with operations in India, Bahrain, Sri Lanka, Malaysia and USA, "there are best practices that are followed by the more successful firms and others try to emulate them. Given the dynamics of the current global business scene, the best practices themselves undergo revision."
Some of the best practices currently in vogue include:
Look beyond the organisation: Supply chain decisions are now influenced by what is happening at the vendor, the customer and the service provider, thus transcending organisational boundaries. An immediate benefit that arises is that there is no sub optimization what benefits the organisation does not become a burden to its partners.
Product visibility across the chain: A great deal of effort is now being made to ensure end-to-end product visibility on an almost real-time basis. While visibility earlier on meant discrete visibility at the end of an activity (say shipping, order execution, dispatch) there is now a requirement to generate information real-time for effective inventory planning.
Outsourcing: Going by the principles of core competence, many businesses are working to shed all activities that are better done by third party logistics providers/contract manufacturers/BPOs. Manufacturing outsourcing is now happening in many FMCG/consumer durable industries where the manufacturing processes are not complicated.
Integration of vendors: Another trend that is emerging especially in the automobile sector is the requirement of manufacturers to expect their Tier I suppliers to provide assemblies instead of discrete parts. This way, there is a large reduction in the vendors that the firms deal with as also making the manufacturing process less complicated with smaller number of parts entering the factory.
Integration of service providers: A large number of service providers handle many of the outsourced functions especially related to transportation and warehousing. This leads to a huge effort on coordination both with regards to day-to-day transactions and contract management. Some of the larger companies are now trying to move to one or at best two service providers for the warehousing/transportation functions.
According to Mr Seshadhri, each business needs to identify its own set of priorities in their processes and set benchmarks to excel. A good starting point is the firm's own backyard.