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Supply chain management

practices in Indian industryB.S. Sahay and Ramneesh MohanManagement Development Institute, Gurgaon, India

Keywords Supply chain management, Strategic evaluation, Inventory, Internet, India

Abstract Increasing uncertainty of supply networks, globalization of businesses, proliferation ofproduct variety and shortening of product life cycles have forced Indian organizations to lookbeyond their four walls for collaboration with supply chain partners. With a gross domestic product(GDP) of over US$474.3 biilion, the Indian industry spends 14 percent of its GDP on logistics.Considering this scenario, it is necessary to study the supply chain practices being followed by the

Indian industry and to suggest areas for improving the same. This paper is based on a joint

survey, covering 156 organizations, carried out by Management Development Institute, Gurgaonand KPMG India. The paper primarily focuses on the status of four major supply chaindimensions. The paper recommends that the Indian industry should align supply chain strategywith business strategy, streamline processes for supply chain integration, form partnerships forminimizing inventory and focus on infrastructure and technology deployment to build a

India-specific supply chain.

IntroductionTodays businesses have become extremely complex. The interplay of the threeCs, namely, consumers, competition and convergence, has thrown open newchallenges for organizations all over the world. Consumers have become highlydiscerning in their choice of products and services. The pressure of competitionhas accelerated product changes, supercharged by shortening product andtechnology development lifecycles. Convergence has shifted the balance ofpower in favor of the consumers thereby giving way to globalization ofbusinesses and integration of economies. although this may have thrown opena plethora of opportunities for all in the form of variety and choice, it has atthe same time added the highest degree of uncertainty and unpredictability tobusiness processes. To combat these risks and challenges, organizations roundthe globe are re-organizing and streamlining their supply chains.

Supply chain complexity: IndiaWorldwide interest in supply chain management has increased steadily sincethe 1980s when organizations began to see the benefits of collaborativerelationships. This management concept is, however, nascent in India (Vrat,1998). Increasing uncertainty of supply networks, globalization of businesses,proliferation of product variety and shortening of product life cycles haveforced Indian organizations to look beyond their four walls for collaborationwith supply chain partners.

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

http://www.emeraldinsight.com/researchregister http://www.emeraldinsight.com/0960-0035.htm

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Received September2001Revised March 2002,February 2003,June 2003

International Journal of PhysicalDistribution & LogisticsManagementVol. 33 No. 7, 2003pp. 582-606q MCB UP Limited0960-0035DOI 10.1108/09600030310499277

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Changes in the environment have been so dramatic and sudden that Indianorganizations have realized the inappropriateness of competing effectively inisolation from their suppliers and other associates of supply chain. Rather, theneed for adopting collaborative methodologies, at this stage, is more than everbefore because of the recent economic deregulation and globalization of theIndian industry. The traditional protective economic, industrial andorganizational boundaries have been demolished (Saxena and Sahay, 2000).While emerging markets offer opportunities they also bring along new rivals.Information networks and technological convergence are re-defining the rulesof economic and trading relationships within the country. Hence, it has becomenecessary for Indian organizations to look for methodologies and processesthat produce maximum efficiency both within and beyond their operations(Sahay, 1999).

For most Indian organizations, which have hardly ever operated in an

open economy, working along with the right business partners (suppliers,customers and service providers), fostering trust between them and designingthe right system of gauging performance is altogether a new ball-game. Andthe statistics show it all. The Indian industry spends an exceptionally highamount of 14 percent of its gross domestic product (GDP) on logistics. Close to22 percent of the aggregate sales, amounting to over US$25 billion, is tied up ininventories in the supply chain network countrywide (Korgaonker, 1999a, b).Although India, with a population base of over a billion, is one of the fastestdeveloping economies of the world, it needs a different approach to put itseconomy on the path of sustainable economic growth.

Indias economic and infrastructure scenarioBefore the 1990s, Indian organizations operated in a protected environment.There was very little competition even amongst domestic players. Businesswas driven by almost monopolistic strategies. However the de-regulation of theIndian economy in the last decade has attracted global players in everyindustrial sector and has unleashed a new competitive spirit in the Indianorganizations (Saxena and Sahay, 2000). Statistics reveal that India, the fifthlargest country in terms of gross national product (GNP) and purchasing powerparity (PPP) (World Bank, 1999) and a consumer base of over a billion (CMIE,2000), constitutes one of the fastest growing markets in the world. India is also

counted among the richest with regard to cheap skilled labor, scientific andtechnological resources and entrepreneurial talents. However, India lagsbehind in competitiveness because of various factors. These include continuedreliance on licensing rules, price controls, state ownership of crucialundertakings, currency controls, barriers to trade along with politicalinstability and a high level of corruption.

Another distinct characteristic of the Indian economic environment is theinadequacy of basic inputs normally required to support organized economic

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activity. The Indian infrastructure comprising roads, railways, airports,seaports, information technology (IT), telecommunications and energyproduction is considered very poor as compared with other developed anddeveloping countries. The overall Indian infrastructure is rated 54th among 59countries in comparison to other developing countries (World EconomicForum, 2000):

. Roads.By the end of 1996-1997, India had a total of 24.66 lakh km of roadlength network. According to estimates of the Planning Commission, theroads carried just 11 percent of goods and 28 percent of passengersduring 1950-1951. The proportions stood at 60 percent for goods and 80percent for passengers during 1995. Express and national highwaysconstitute only 1.4 percent of the total road length, but carry nearly 40percent of total road traffic. Reach in the interiors of the mainland islimited with only 48 percent of the 0.55 million villages being connected

with roads. This poses a serious limitation of access and connectivity torural markets. In spite of the vast road transport network, India is rated56th (Porter, 2000) in terms of the competitiveness on road infrastructure.This is primarily because the quality of roads plays a pivotal role towardssafe and swift transportation of goods and Indian roads are of poorquality.

. Rail transport.The Indian railway network is the second largest railroadsystem in the world covering a route length of 81,511km. This facilitates4,630.05 million passengers and 450 million tonnes of freight movementevery year (CMIE, 1999). However, in terms of the quality of rail

infrastructure, Indian railways are rated 25th among 59 nations (WorldEconomic Forum, 2000). This results in the slow average speed of freightmovement and low average wagon turnaround time, which are majorconcerns for the logisticians in the country.

. Airports. The six international and 87 domestic airports handle 0.22million metric tonnes of domestic cargo and 0.468 million metric tonnes ofinternational cargo, which is extremely poor in terms of world standards.As a result, the quality of airport infrastructure is rated 40th among 59countries (Porter, 2000). This poses a serious limitation in procurement,especially when companies are looking at adopting global sourcingstrategies to reduce costs and enhance product quality.

. Seaports.There are 11 major ports that handle the total foreign trade ofthe country amounting to 271.92 million tonnes (CMIE, 1999). The facilityand infrastructure of Indian ports are rated 51st among 59 countries(Porter, 2000) primarily on account of lack of storage space and outdatedhandling equipment.

. Telecommunications.With a teledensity (number of phone lines per 100persons of the population) of 3.6 in March 2001, the telecommunication

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network in India is one of the largest telecommunications networks inAsia. This capacity has increased to 4.89 with the availability of cellularand WLL operators. However, it drastically lags the global average of17.2. Developing countries like Brazil and China have a teledensity of 21.8and 13.8 respectively. Developed countries like USA and UK haveteledensity of 66.5 and 58.8 respectively. As a result, delivering low-costvoice telephony and low-cost high-speed computer networking forcommunication and business integration remains a big challenge in theIndian scenario.

. IT.The 43 Internet service providers provide Internet access to 5 millionusers in the country. In 2001, the IT expenditure of 3.46 percent of GDPresulted in a computer density (PCs per 1,000 persons of the population) of1.5 making the reach and availability of IT services far from desirable.A major part of this is due to the non-availability of wide area networks in

the public domain as well as lack of awareness by the users.All the factors related to infrastructure stated above have adversely affectedthe supply chain network in the country both in terms of lead-time and costs(Korgaonker, 1999a, b). Indian organizations were ill-prepared for meeting thechallenges effected by an open economy and had not developed the requiredinfrastructure to meet the eventuality created by globalization of businessesand deregulation of the Indian economy. The challenge in such a scenario is tocome out of the comfort zone provided by a protected economy, redesign andimplement bold policies with emphasis on effective mobilization of resources,achieve sustained export growth, and eventually develop competitivestrategies to have a sustained GDP growth rate of over 7 percent (Rao, 1998).

Need for researchTo succeed today and to pave the way for a better future, Indian organizationsneed to create strong linkages with their business partners using the concept ofsupply chain management. More and more Indian organizations today arerealizing the importance of developing and implementing a comprehensivesupply chain strategy and then linking this strategy to the overall businessgoals.

A collaborative research titled Supply Chain Management Practices inIndia was taken up by Management Development Institute, Gurgaon, India

and KPMG India in this regard. The findings conclude that lapses exist, in themanner in which supply chains are organized, all along the supply chains inIndia.

Research objectivesThe research study was taken up to address the concerns raised by managers,expert professionals and academicians on issues of supply chain at the nationallevel.


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This paper focuses on the status of supply chain management in India alongthe four major dimensions of supply chain namely supply chain strategy,supply chain integration, inventory management and IT in the Indian set-up.The reason for focusing on the first three dimensions for supply chains in India,has been derived from the score of criticality of supply chain processes(exhibited in Table I). With customer service/satisfaction scoring the highest interms of importance to business objectives and criticality to supply chainstrategy, it is imperative to focus on supply chain strategy and analyze itsalignment with business strategy. The criticality of demand management andinventory management makes it necessary to look into the aspect of supplychain integration and inventory management respectively. Finally a study ofthe fourth dimension, IT, is essential as it is an enabler for businesses lookingforward to perfecting their supply chains all across the globe. It is the factualcomponent that provides the global scope needed to make optimal decisions

and on which decisions about each of the other dimensions are based.

Research methodologyTo fulfill the research objectives, a comprehensive survey questionnaire wasdesigned to capture the facts, figures as well as qualitative responses about thesupply chain practices in organizations. It quantified the extent of deploymentof supply chain strategies, the structure of supply chain in various industrysectors and the problems encountered in organizing supply chain systems byorganizations for strengthening supply chain management. A pilot survey wasconducted to access the appropriateness of the questionnaire for executives inIndian organizations. The methodology adopted has been depicted in Figure 1.

Demographic detailsThe survey questionnaire was mailed across to 1,733 target organizations invarious industry segments in India. The target population was drawn from thelist of Confederation of Indian Industries (CII) and Associated Chambers of

Supply chain process Criticality score

Customer service 4.38Demand management 4.22Inventory management 4.19Order processing/fulfilment 4.05Manufacturing 3.97Product development 3.53Transportation 3.43Distribution management 3.43Import export management 3.32Promotion planning 3.18Warehousing 3.03

Table I.Criticality of supplychain processes

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Commerce and Industry of India (ASSOCHAM) across all industry segments inIndia. Responses were received from 156 companies, giving a response rate of 9percent. As the response rate was low, there was a possibility of non-responsebias in the mail surveys. Although the response rate compares well withresearch studies (Saxena and Sahay, 2000; Korgaonker, 1999a, b) conducted inmanufacturing sector across Indian organizations in the past and thereforeseems to be reasonably acceptable. Nevertheless, almost 91 percent of theorganizations receiving the survey questionnaire did not respond, raising theissue of a non-response bias in the current study. Does this fact introduce anybias to the data and implications derived from the responding organizations?

That is, do the results reported in this study misrepresent the true experiencesand opinions of supply chain management practices in Indian industry? Thisissue was validated by using chi-square test with 95 percent confidence leveland found that:

. The distribution of the response group by geographical area and industrycategory shows no significantly different pattern relative to thepopulation data.

Figure 1.Schematic diagram ofresearch methodology


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electronics (Figure 3). However, results of the study may not been extrapolatedfor all individual industry segments because of the sample size not beingrepresentative for individual categories.

The respondents were requested to fill out a survey questionnaire so as toelicit responses on the supply chain and logistics issues faced by theirorganization. Quantitative responses were measured using a five-point Likertscale ranging from 1 strongly disagree to 5 strongly agree.

In addition to the survey questionnaire, the response received was validatedthrough personal interviews by the research team. The research teaminteracted with the top management of 52 of the responding organizations togain an insight into the business strategies and their focus toward supply chainin achieving competitive advantage.

Research results and analysis

The results of the survey have been summarized, in the following sub-sections,along the four major dimensions namely:

Figure 3.Classification of

respondents by industry


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(1) supply chain strategy;

(2) supply chain integration;

(3) inventory management; and

(4) information technology.

Dimension 1: supply chain strategyStrategy can be defined as a set of dynamic, integrated decisions that one mustmake in order to position ones business in the complex environment. Thus,strategy represents the overall actions or approach to be taken to achieve thefirms goals and business objectives (Gattorna, 1998). Todays businessenvironment, as explained in the introductory sections, cannot be addressed bystrategies characterized by individual organizations looking to achievedominance against all competitors and solely relying on order-winning

criteria that are product-based. Instead, it requires a focus on synchronizedmanagement of the flow of physical goods, associated information and alliedservices from sourcing through consumption (Christopher, 2001). Supply chainmanagement covers the entire gamut in its decision-making framework. Hence,the need for supply chain strategy for competitive advantage in contrast to whatit was earlier, demanding top-level management attention. By elevating supplychain management to the heart of decision making in the boardroom, and unitingcorporate and supply chain goals, companies can boost profitability, enhancegrowth and substantially increase the shareholder value (Sahay, 2000). Thechallenge is to take supply chain to a more strategic level within the firm so as tohave a sustainable business impact, and not just be content with managing it.

Business objectives. All the organizations were asked to prioritize theirbusiness objectives on a five-point scale, with a score of 1 indicating notimportant and a score of 5 indicating very important. These strategicobjectives included maximizing profits, turnover, return on investment,earning per share, value to shareholders and customer satisfaction. It isheartening to note that the objective of increasing customer satisfactionsurpassed the objectives of maximizing profit and delivering highest value toshareholders (Table II). The companies have realized that short-term profitmaking does not lead to accomplishing long-term growth and profitmaximization. Hence, their emphasis on providing customer satisfaction.

Overall business objectives Weighted score for importance

Maximize customer satisfaction 4.82Maximize profit 4.46Increase turnover (sales) 4.37Increase return on investment 4.28Deliver highest value to shareholders 4.27Increase earning per share 4.02

Table II.Importance of overallbusiness objectives

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Supply chain objectives. Todays business world is defined by change.Externally, there are powerful and global competitors, influential customersdemanding more complex and varied services at less cost, and the increasing

implications of mergers and acquisitions. Internally, there are stock-holdersrequiring a constant increase in returns. The future success of an individualcompany will depend on its ability to weather and manage the forces of change.When a company finds itself struggling to maintain profit margins, a renewedfocus on supply chain strategy becomes more important.

Analysis of weighted scores of various supply chain objectives indicate thatenhancing customer service/satisfaction outscores all other objectives in termsof their effectiveness in the supply chain management. At the same time,expanding revenue (sales), reducing inventory cost and improving on-timedelivery follow closely in terms of supply chain priorities (Figure 4).Undoubtedly, all the four objectives stated above are the most vital and basic

criterion for any supply chain management strategy to produce tangibleresults, which is well understood by the top management. Improvements inthese metrics have a direct effect on the bottom line of the organization.

Mapping business objectives with supply chain objectives.The supply chainobjectives were then subjected to a factorial analysis. The cumulative sum ofthree-factor loadings explains over 52 percent of the variation. The threefactors were then compared with the weighted score for importance frombusiness objectives. The business objectives and the supply chain objectives

Figure 4.Importance of supplychain objective to top

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could be broadly classified under three key focal areas (factors) customerservice, profit maximization, operational excellence as listed in the Table III.

A closer look at the supply chain objectives and business objectives covered

under each focal area (factor), reveal that the two are in congruence with thetop as well as the bottom scores of each classification falling under the samefocal area. A comparative of the first focal area on customer servicehighlights the fact that a key criterion of customer satisfaction is the quality ofthe product and the availability of product. Quality of product is characterizedby highly reliable product and best product performance while availabilityof product is a function of expanding width/depth of distribution and havingproducts in stock. These parameters are very much the guiding factor whiletaking supply chain decisions in India to maximize customer satisfaction. Thesecond factor of profit maximization, matches the importance of expandingsales revenue, reducing inventory cost and other cost factors with the

business objectives of maximizing profits and increasing sales turnover. This

Focal area Business objectivesa Supply chain objectivesb

High: customer service Maximize customersatisfaction (4.82)

Enhance customer service/satisfaction(4.93, 0.368)Highly reliable product (4.57, 0.834)Best product performance (4.51, 0.844)Reducing transportation costs (3.96,0.472)Expanding width/depth of distribution(3.62, 0.512)

Having products in stock (3.43, 0.660)Medium: profitmaximization

Maximize profit (4.46)Increase turnover (sales)(4.37)Increase return oninvestment (4.28)Deliver value toshareholders (4.27)

Expanding revenues (4.56, 0.407)Reducing inventory costs (4.52, 0.672)Improving on-time delivery (4.43,)Lowest product cost (4.37, 0.572)Reducing order to delivery cycle time(4.33, 0.859)Reducing lead time (4.28, 0.830)

Low: operationalexcellence

Increase earning per share(4.02)

Flexibility of production volume (4.17,0.679)Flexibility of product mix (3.90, 0.679)Innovating new product/services (3.88,0.500)

Reducing warehouse costs (3.68, 0.441)Reducing/rationalizing supplier base(3.64, 0.633)Offer broad product line (3.50, 0.702)

Notes:a Figures in brackets indicate weighted mean scores for each parameterb Figures in brackets indicate (weighted mean score, rotated factor loadings) for each parameter.Rotated factorial loadings have been computed using varimax method in Minitab

Table III.Mapping supply chainobjectives with businessobjectives

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is shaped by the current environment in which the companies operate in theIndian economic scenario to drive productivity improvements in eachbusiness function.

Given that US companies appear to focus their efforts on cost reduction, it issurprising that Indian companies are different. The reason for this differencestems from the manner of evolution and development of manufacturing andsupply chain in the two countries. Supply chain practices in the USA startedwith a focus on streamlining and integrating of various processes runningacross functions and organizations. This was undertaken with the objective ofevolving a holistic view of all the activities undertaken in the supply chain. Thesecond stage involved making the supply chains customer-driven or customercentric so as to deliver bottom-line results. The third stage was to pass onfurther benefits to the end-customer, by focussing on cost, throughput anddelivery time. This is the crucial stage that helps make supply chains develop

the competitive edge for businesses.While US organizations have moved over from integration of businesses todemand-supply alignment to a focus on cost reduction, Indian organizationsare far from it. This has primarily been because of the business environment inIndia, as stated earlier. With increasing competition ushered in by deregulationand globalization, Indian companies have realized the need to have a highdegree of customer orientation in their business activities both in terms ofproduct offerings and services. As the research data reveal, companies havegiven highest priority to customer satisfaction as far as both businessobjectives and supply chain objectives are concerned. However, they havealready begun to feel the global pressures of driving down costs. Thus, as far

as the evolution of supply chain is concerned, the Indian companies are nodifferent. However, they are definitely at a different stage of the developmentand maturity of adoption of supply chain practices with respect to their UScounterparts.

Dimension 2: supply chain integrationThe supply chain strategy cannot truly be aligned to overall business strategy(unless all the functions of the enterprise are integrated and unless strategicrelationships have been established with supply chain partners) based on trustand information sharing, so that it can quickly respond to customers demand

with unique and tailored offerings. Effective integration is the key because ifone of these links fail, the organizations performance may suffer and may notmeet the expectations of its customers, or the service level of its competitors.The primary benefit of integration is that all business units and supply chainpartners share the same data, synchronize actions and minimize distortions indemand management (Kalambi, 2000).

Supply chain processes. In most of the organizations, supply chainmanagement covers the processes of demand management, manufacturing


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planning and scheduling, inventory management, order processing andfulfilment, warehousing, transportation, distribution management,import/export management, product development, promotions planning and

customer service. The criticality of these supply chain processes was evaluatedby the respondents on a five-point scale. A score of 1 on the scale indicated notcritical and a score of 5 indicated very critical process for the organization.Table I presents a weighted score for criticality of supply chain processes (on ascale of 1 low to 5 high).

Customer service ranks as the most critical process for the respondents. Asmany as 63.8 percent of organizations rate it as being very critical to theirsupply chain strategy. Following closely are demand management, inventorymanagement and order processing/fulfilment with over 40 percent of therespondent base in each category classifying them as most critical. Thesupply chain processes like customer service, demand management, inventory

management and order processing/fulfilment show a sincere concern of theIndian organizations to improve customer service as well as to depict theirincreasing understanding of the need to perfect customer-centric processes.

The focus on inventory management gives testimony to the fact that theIndian industry has realized that the inventory levels will have to be monitoredand maintained at the lowest possible level, without compromising oncustomer service, in order to deliver superior bottom-line results. Surprisingly,warehousing scores the lowest in terms of criticality among all the supplychain processes. However, the process needs to be re-examined because of theincreasing importance of developing superior warehouse management systems

to back up the inventory management systems.Management focus on supply chain processes. The individual scores onimportant supply chain issues were then subjected to a factorial analysis.The cumulative sum of three-factor loadings explains close to 60 percent ofthe variation. The importance of supply chain processes under the threefactors were matched with the extent of time devoted by supply chainpersonnel across the various constituents of supply chain like orderfulfilment, inventory, compilation of information for decision making,distribution, statutory requirements, quality, to mention a few.

Table IV presents the weighted scores (on a scale of 1 low to 5 high) onthe extent of time devoted by supply chain personnel on various issuespertaining to supply chain management and maps them with the three focalareas of businesses identified earlier.

The results reiterate the focus on customer service among Indianorganizations, as an important constituent of business and hence supplychain strategy. This is complemented with the management focus onquality to deliver highly reliable product and best productperformance and demand forecasting to ensure availability of product.

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The second factor encompassing supply chain issues of order fulfilment,inventory management and compilation of information sum up theprofitability of the business. With integration of various constituents ofbusiness through technology yet to become a reality for the Indianorganizations, the above three areas take away a major chunk ofmanagement time and energy. A positive observation here is the low levelsof time devoted to the issues related to operational excellence (third factor)primarily on account of the increased outsourcing of these activities.

Supply chain processes matrix. For the purpose of the survey, the supply

chain processes were classified on a two-dimensional matrix (Figure 5):(1) primary focus of process (enterprise vs intra-enterprise); and

(2) level of interaction required for the process (high vs low).

Enterprise covers processes which have a greater focus on internal processes(e.g. product development, manufacturing) while intra-enterprise covers

Focal area Supply chain issuesa

Managementfocus(time devoted)

High: customer service Customer service (4.30, 0.813)Quality (4.11, 0.691)Demand forecasting (3.58, 0.544)

High

Medium: profit maximization Order fulfilment (4.20, 0.699)Inventory management (3.83, 0.667)Compilation of information (3.57, 0.797)

Medium

Low: operational excellence Transportation (3.49, 0.621)Distribution (3.35, 0.866)Statutory requirements (3.18, 0.678)

Low

Note:a Figures in brackets indicate (weighted mean score, rotated factor loading) for each parameterRotated factorial loadings have been computed using varimax method in Minitab

Table IV.Mapping management

focus with supply chainissues

Figure 5.Supply chain process

matrix


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processes having greater focus on processes external to the enterprise i.e.oriented towards external stakeholders (e.g. demand management, customerservice, order processing/fulfilment).

Low level of interaction refers to low to medium level of interaction with otherenterprise and/or inter-enterprise processes, while high refers to medium to highlevel of interaction with other enterprise and/or inter-enterprise processes.

It is interesting to note that processes that relate to enterprise supply chainwith low level of interaction with other processes come out as less critical.However, those that involve intra-enterprise interface or integration with highlevel of interaction with other processes emerge as highly critical.

Dimension 3: inventory managementManagement of inventory has received considerable attention over the years.Managers ascribe different reasons for holding or not holding inventory. Some

of the major reasons for holding inventories by Indian organizations include:improving customer service; hedging against price changes and contingencies;achieving production, purchase and transportation economies; protectingagainst demand and lead time uncertainties; and balancing supply anddemand. They are also confirmed by the present study. Each of thesemotivators is presented here under:

. To improve customer service. As depicted in Table III, enhancingcustomer satisfaction/service ranks high among the respondents forachieving both business objectives and supply chain objectives. Withbusinesses wanting to enhance customer satisfaction, higher levels ofinventories need to be maintained to fulfill customer demand.

. To hedge against price changes and contingencies. The research datarevealed that about 33.7 percent respondents indicated seasonality ofdemand in their businesses with end of calendar year (October-December)as the most common season (Figure 6).

Table V provides percentage of sales in season for percentage ofrespondents. That is, more the seasonality factor in the demand and thedifference in demand requirement of products in season and during therest of the year, the more are the complications in supply chain design and

Figure 6.Seasonality of demand

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planning. Businesses are forced to hedge against price changes andcontingencies by maintaining high inventory levels so as to fulfill demandduring the peak season.

The demand of products for Indian organizations varies not onlyacross seasons, but also within a month. This holds true for all themonths round the year. A total of 61.2 percent of respondents indicate amonth-end skew in sales and over one-third indicate year-end skewness insales, which is a very high figure (Figure 7). The extent of skew indicatedwas 10-24 percent for 28.7 percent of the respondents, 25-50 percent for40.7 percent of the respondents and over 50 percent for 20.4 percent of therespondents. This not only increases the complexity of supply chainmanagement, but also is the main contributor to the building up ofinventory during the month.

. To achieve production, purchase and transportation economies.Figure 7

depicts that 24 percent of respondents plan for finished goods inventorybased on manufacturing capacity. This is primarily to achieve productionand purchase economies, and results in excess inventory in the system.

. To protect against demand and lead time uncertainties.The lead times inthe supply chain network in India are high. This is brought to the fore bythe respondents during the course of the study. About 15.8 percent ofrespondents indicate a lead time of over a month to fulfill domestic orders.About 45 percent of the respondents indicate one- to four-week lead timeand 55 percent of these would like to bring it down to below one week. Atotal of 28.6 percent of respondents quoted a lead-time of up to a week and

25 percent of these would like to bring it down further (Figure 8).Furthermore the research also reveals that only 50.8 percent of the

respondents have both an average shipment accuracy as well as average

Figure 7.Skewness of sales

% of sales in season % respondents

36.5 ,5022.3 50-6025.9 60-7515.3 75-90

Table V.Percentage of sales

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on-time order fill rate of over 90 percent forcing companies to carryinventories to enhance customer satisfaction.

. To balance supply and demand. Supply chain planning thrives on theaccuracy of demand forecasting. Respondents state having used a host oftechniques and methods for demand forecasting. Popular methods in usefor forecasting demand included simple average (23.8 percent), time series(19.5 percent), regression (8.9 percent) and causal models (7.7 percent).However, only 45.6 percent of the respondents indicated a forecastaccuracy of ^10 percent with about 32.4 percent at ^25 percent(Figure 9). These accuracy levels are low forcing organizations to carry ahigh level of inventory in the supply chain network.

Pull versus push inventory replenishment process.In a push-based system, theproduction decisions are based on long-term forecast. Typically, themanufacturer uses orders received from retailers warehouses to forecastcustomer demand, thereby taking a much longer time to react to the changing

Figure 8.Average lead time(actual vs ideal) for

domestic orderprocessing

Figure 9.Percentage accuracy offorecast

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marketplace. In order to make the system more responsive, organizations areadopting pull-based systems for inventory replenishment. Globally, whilepull-based systems are being much talked about, 84.1 percent of therespondents indicate use of push-based inventory replenishment systems inIndia. A few companies (15.9 percent) have turned to pull-based inventoryreplenishment process, where inventory is replenished by suppliers, based onmovement of product on the shelves and amount of inventory remaining. As aresult the inventory replenishment process in a pull-based system, in whichproduction is demand driven, to co-ordinate with the actual customer demand.

It is surprising to note that in todays environment where the customer canalmost expect his/her requirement to be customized, the push system dominatesall Indian industries, where most industries still believe in manufacturing tobuild up stocks. Obviously most companies believe in the principle that theyshould flood the distribution system with stocks, which would help increase

off-takes, and ward against the fear of losing sales to competition.Inventory planning process for finished goods. Recent inventory management

practices dictate achieving zero stock levels for finished goods and taking up ofproduction against firm orders. However, only 11.1 percent of the respondentsindicate pure make to order (MTO) environment. 47.9 percent indicate planningfor finished goods inventory based on orders booked or existing order backlogand 22.9 percent indicate planning for finished goods inventory based onmanufacturing capacity (Figure 10).

Globally, the stock holding policy is a function of the product characteristics.Core business products which figure highly predictable flow rates should haveminimum (zero) stocks. Stock holding of seasonal products, which are slowmoving, critical, perishable and whose peaks are relatively predictable, are tobe minimized, building them only during peak demand period. Fad products,with highly unpredictable levels of demand, high criticality and long leadtimes, essentially must hold high level of stocks thereby allowing safetymargin for delivery, lead time and demand fluctuations (Gattorna and Walters,1996).

Figure 10.Rate of non-moving

inventory


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Non-moving inventory. About 82.7 percent of companies indicate rate ofobsolescence of inventory to be less than 10 percent, while 3 percent indicatethe obsolescence at 25-50 percent (Figure 11) requiring an urgent focus byorganizations to release blocked resources.

Dimension 4: ITInformation is a driver whose importance has grown as organizations haveused it to become both more efficient and more responsive. The tremendousgrowth of the importance of IT is a testimony to the impact information canhave on improving an organization. As the importance of information grows,so does the importance of IT in gathering and analyzing those data to make adecision.

Information deeply affects every part of the supply chain to maximize totalsupply chain profitability. It serves as the connection between the variousstages of supply chain allowing them to co-ordinate their actions and scheduledaily operations. The scope of the supply chain that is covered by the ITsystem and the systems level of functionality help decide the applicability ofIT system for the supply chain. However, the choice of IT system needs tomake the trade-off between the cost of information (a reduction in efficiency)and the responsiveness that information creates in the supply chain (Chopraand Meindl, 2001).

IT budget and spending.Current levels of IT budget in the organization areeven less than 0.1 percent of gross sales for 13.5 percent of the respondents,0.1-1 percent of gross sales for 42 percent and 1-3 percent of gross sales for 23.5

percent of the respondents. The overall average IT spending of 1.3 percent ofthe respondents is definitely low compared with the overall global average of4.93 percent on IT spending. However, organizations have planned for a majorincrease in their IT investment levels in the coming years. The projected levelof IT budgets in the coming years are 1-5 percent and more of the gross salesfor over 47.6 percent of the respondents (Figure 12).

For most of the organizations the proposed IT budgets represent an increaseof over 100 percent in their IT spending in the coming years. With IT being thebedrock for a successful supply chain strategy execution, this step should make

Figure 11.Methods of inventoryplanning for finishedgoods

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the Indian organizations capable of reaping the benefits of supply chainmanagement.Present usage of IT applications.A look at the usage pattern of software

packages in the organization reveals that there is a clear bias of usingstand-alone modules instead of adopting integrated solutions. A total of 61percent of respondents are using software package for materials accounting inthe Indian environment. Software packages for enterprise resource planning(ERP)/manufacturing resource planning (MRPII) and sales and distribution areused by 48.6 percent and 43.8 percent respondents respectively. The highpercentage usage of ERP/MRPII packages despite low IT spending is becauseof the fact that Indian companies prefer to use in-house developed software, as

compared with standard packaged solutions e.g. SAP, Oracle, Baan, etc. andtherefore, do not require large financial investments. As per our study, only 33percent of respondents prefer to use packaged solutions whereas 67 percent ofcompanies use in-house/custom-developed solutions. Warehouse management,supply chain management and demand management applications are yet topercolate in Indian industry. The applications and the percent respondentsusing them is presented in Table VI.

It needs to be noted that supply chain management solutions are used byonly 17.1 percent of the respondents, which is an area of concern in developingsupply chain capabilities. Software packages popularly in use by industry are:

.

Engineering, automotive materials accounting, computer-aided design(CAD) and drafting, ERP/MRPII.. Chemicals and fertilizers, FMCG materials accounting, sales and

distribution.. Textile sales and distribution.. FMCG materials accounting.. Metal process control and optimisation, shop scheduling and loading.

Figure 12.Current and projected

levels of IT budget


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IT applications operations covered and proposed. Operations covered byexisting applications include inventory management, order fulfilment,warehouse management and sales returns, in that order. Existing ITsolutions encompass the business operations covering inventory management,order fulfilment, warehouse management and sales returns. All of these areasare primarily restricted to the boundaries of the enterprise.

Operations to be covered with proposed applications include barcoding,electronic data interchange (EDI) with customers, EDI with suppliers,monitoring costs/performance, distribution network planning and freightcost management. Table VII presents the coverage of various operations in theexisting and proposed applications.

Application % respondents using IT

Materials accounting 61.0ERP/MRPII

48.6Sales and distribution 43.8CAD/drafting 32.9Shop scheduling and loading 19.2Warehouse management 17.8Supply chain management 17.1Process control and optimization 15.8Demand management 13.7Engineering data management 13.0Manufacturing execution system 11.6Computer-aided process planning 9.6

Table VI.Usage of IT applications

OperationExisting application Proposed application

(% respondents) (% respondents)

Inventory management 60 14Order fulfilment 46 25Warehouse management 36 21Sales returns 34 18Monitoring costs/performance 30 29Lot tracking 15 18Distribution network planning 14 29Freight cost management 10 29Barcoding 8 36Distribution requirement planning 8 18Automatic freight payment 7 19EDI with suppliers 5 33Facility network planning 5 23EDI with customers 4 34EDI with carriers 2 25Mobile solutions 1 18

Table VII.Operations covered bycurrent and proposed ITapplications

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Not surprisingly, the proposed IT solutions show a clear shift to areas whichinvolve networking with business partners and focus on logistics. The futureareas of operations for IT solutions include facility network planning,barcoding, EDI with carriers, customers and suppliers, freight costmanagement and mobile solutions being on the business plans of as manyas 80-90 percent of the respondents.

Where do we go from here?Summarizing the analysis and the findings of the research data, the paperproposes four actionable points for perfecting the supply chain. These havebeen developed to address each of the areas explained in detail below:

(1) Align supply chain strategy with business strategy.First and foremost, itis the alignment that matters. No matter which industry one chooses tooperate in, the supply chain strategy must holistically align with the

business strategy. Presently, a majority of Indian organizations have aweak alignment of supply chain strategy with business strategy as aresult of which the actions do not result in bottom-line gains. This isprimarily so, because the organizations are rigidly structured alongfunctional lines with department-specific performance measures. Theyhave failed to adopt performance metrics, which are derived from asupply chain objective to meet business needs. As a first step, Indianorganizations need to resolve the performance measurement issue sothat the departmental metrics are aligned with the overall supply chainobjective to meet the business objective.

(2) Streamline processes for supply chain integration.As the survey reveals,

most business executives in Indian organizations have realized the direneed to straighten up their supply chains for profitability andcompetitiveness. However, not many of them have given a seriousthought to putting an integrated structure in place. To overcome this,Indian organizations need to change the way people think about supplychains the onus of which falls on the top management. It is this supplychain mindset of evolving an integrated structure, which willdetermine the end result. It also requires supply chain managers tounderstand business processes that run across organizationalboundaries, establish their interdependencies, streamline or reengineerthem so that they meet customer requirements. It is only with thoughtfuland thorough understanding of business processes that such integrationcan be achieved.

(3) Attack inventories through partnerships. Supply chain managementprovides the ability to capture demands from the market, quicklytranslate it to supplier requirement and finally fulfill consumer needs.With no single entity competent enough to carry out all the activities inthe demand fulfilment process, the entire exercise involves forming


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alliances with supply chain partners. Partnership and strategic alliancesform the bedrock of such a competitive supply chain strategy. It calls forIndian organizations to collaborate with supply chain partners for

product design, product development, logistics, warehousing, marketreach, manufacturing and procurement all with the objective of cuttingdown inventories in the entire supply chain framework. However, this iseasier said than done. It involves a dual strategy of fostering trust aswell as optimising resources, performance and gains across the supplychain. Successfully accomplishing this twin-objective requires areciprocal and continuing commitment of human, technical, andinformational resources on the part of supply chain partners.

(4) Deploy infrastructure and technology as an enabler.Technology, whichwas earlier mistaken to be a driver for doing business in a particular

fashion, has become a necessary enabler for aligning business toconsumer demand. It can change the way we capture and analyseinformation, differentiate products and services, configure and sellexisting products, crash order cycle times, introduce new products andso on and so forth. IT can thus achieve breakthroughs in the area ofsupply chain design, configuration and planning, which otherwise cannever be thought about. Not surprisingly, IT tools for Indianorganizations are still a luxury with organizations still preparingthemselves to harness its power to improve supply chains. However, tocompete in todays environment IT tools are a necessity. The size of theorganization does not matter as fortunately the cost of technology hasbeen reduced so that even the smallest organization can now affordthem. Worldwide, best-in-class companies have invested in enablinginfrastructure and technology to realise their supply chain vision into areality. These include integrated supply chain cost models for decisiveinventory management, technology for handling supply chainthroughput, and information systems capable of fostering visibilityacross functional and organizational boundaries. However, successfulsupply chain management at the enterprise level depends heavily on thestate of the infrastructure scenario in the country. Undoubtedly, the stateof infrastructure in India has been impacting the industrial and economic

performance for long. It requires a concerted effort by the industry andgovernment to dismantle bottlenecks in the completion ofinfrastructure-related projects and creation of demand-alignedcapacities in sectors of logistics and information technology.Deployment of infrastructure and technology to foster collaboration,flexibility, speed and accuracy would be the foundation for developing acompetitive supply chain framework for Indian organizations.

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ConclusionThe study has implications for Indian industry. This paper has outlined thesupply chain practices followed by Indian organizations giving due coverage tofour dimensions namely supply chain strategy, supply chain integration,inventory management and IT. It is recommended that Indian organizationsshould align supply chain strategy with business strategy in order to deliverhighest customer satisfaction, streamline processes for supply chainintegration to achieve operational excellence, and form partnerships tominimize inventory and maximize profits. In order to achieve these results thepaper suggests harnessing the power of IT. Coupled with this is the actionrequired by the Indian government to improve the infrastructure for thesmooth functioning of supply chain. The study may help the Indian industry tobenchmark their supply chain practicesvis-a-vissupply chain practices in otherdeveloping economies.

Further area of researchThis research opens the way for other in-depth studies of some of the criticalprocesses identified for supply chain management practices. Detailed casestudy analyzing some of these processes are a natural component to the resultspresented above. For example inventory management problem may be furtherexplored in a form of a case study describing some of the methods used tocontrol and utilize stock level. Similarly, further research can be carried outusing a specific case to integrate supply chain strategy with business strategy.Business-to-business transaction in India is at an infancy stage. Some detailedstudy may be carried out in this area. Finally, research could also focus onestablishing actual performance improvements in supply chain managementreflected in cost-saving and customer satisfaction effects.

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