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A case study of leading fire and safety manufacturing company in u.a.e


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A case study of leading fire and safety manufacturing company in u.a.e

  1. 1. Summer Internship Project Report OPTIMIZING SUPPLY CHAIN PERFORMANCE: A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E By Anu Damodaran AUD0260 MBA – General (Batch 2012-2014) Under the supervision of DR. Anita Mirchandani Faculty of Management Sciences Submitted In Partial Fulfillment of the Requirements for the Degree of Master of Business Administration - General AMITY UNIVERSITY DUBAI P.O. BOX NO 345019
  2. 2. DECLARATION Title of the Project Report: OPTIMIZING SUPPLY CHAIN PERFORMANCE: A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E. I declare a) That the work presented for assessment in this Summer Internship Report is my own, that it has not previously been presented for another assessment and that my debts (for words, data, arguments and ideas) have been appropriately acknowledged. b) That the work conforms to the guidelines for style and presentation set out in the relevant documentation. Anu Damodaran Place: Dubai AUD0260 Date: MBA – General (Batch 2012-2014) Amity University Dubai ii
  3. 3. CERTIFICATE I, Dr. Anita Mirchandani hereby certify that Ms. Anu Damodaran student of Master of Business Administration – General at Amity University Dubai, has completed the Summer Internship Project Report on “OPTIMIZING SUPPLY CHAIN PERFORMANCE – A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E.”, under my guidance. Place: Dubai Dr. Anita Mirchandani Date: Faculty of Management Sciences Amity University Dubai iii
  4. 4. ACKNOWLEDGEMENT I, Ms. Anu Damodaran, sincerely thank and acknowledge the valuable inputs and guidance extended to me by Dr. Anita Mirchandani, Faculty of Management Sciences, Amity University Dubai, toward successful completion of this summer internship project report on “OPTIMIZING SUPPLY CHAIN PERFORMANCE – A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E.”. I extend my sincere thanks to Mr. Amin Bekai, Senior Management Team, Managers, Staff and all Employees at Fire and Safety Manufacturing Company in U.A.E. for their support and help during my summer internship which has proved to be very fruitful toward completion of this report. Thanking you, Yours sincerely, Ms. Anu Damodaran AUD0260 MBA – General (Batch 2012-2014) Amity University Dubai iv
  8. 8. 1 ABSTRACT OPTIMIZING SUPPLY CHAIN PERFORMANCE – A CASE STUDY OF LEADING FIRE AND SAFETY MANUFACTURING COMPANY IN U.A.E The purpose of this study and report is to know some of the current developments in the theory and practice of supply chain management and to highlight the challenges, prospects and developments. This report is based on two month learning of supply chain process from the internship in a Fire and Safety Manufacturing Company1 , Dubai. Around 8 highly qualified and experienced managers and 20 experienced staff across various functions of the supply chain were interviewed and observed. Data has also been collected from published papers, working papers and books. The report and case study tells that supply chain management is still evolving in terms of both theory and practice. The report finds range of key hurdles and supports to supply chain management and it also includes an assessment of the main trends. The study reveals the significant gaps between theory and practice of supply chain management. The main challenge is identified as who could or who should manage the supply chain. An attempt has been made to suggest practical steps to overcome the challenges. This report is original in drawing a systematic study to assess current theory and current developments. The study tries to show the way for managers to meet the present and future challenges in supply chain management. Keywords: Supply Chain Management 1 This will be referred as “The Company” in the following pages
  9. 9. 2 OBJECTIVE a) To understand supply chain efficiency and responsiveness b) To know how supply chain efficiency and responsiveness can be improved c) To recognize the impacts of improving supply chain efficiency and responsiveness d) To identify the challenges to improve supply chain efficiency and responsiveness e) To spot the risks in implementing efficient and responsive supply chains
  10. 10. 3 CHAPTER - I I.1 INTRODUCTION This report is based on my two month summer internship as a mandatory requirement of the MBA degree program. The internship was carried out in “The Company”, Dubai. As a part of the training program I was deputed to the following departments/functional areas of the supply chain at “The Company”:  Dispatch and delivery  Export  Maintenance  Projects  Inventory  Procurement and purchasing  Production  Planning i. COMPANY PROFILE The company is amongst the world’s largest manufacturers and full solution providers of firefighting equipment, fire protection systems, fire alarm, security systems and safety engineering under one roof. The company was established with a vision to be the world’s most recognized fire Protection Company through quality and development to save lives and properties. Headquartered in Dubai, UAE, the company has spanned the globe by serving over 108 countries worldwide. The company undertakes turnkey projects from design, supply, installation, testing and commissioning of various systems like fire detection, fire alarm, fire suppression and fire fighting systems. The company provides after sales service, spare parts and training. It has a maintenance team that provides 24/7 service to ensure efficiency of the fire protection systems for its clients.
  11. 11. 4 The company’s product range includes different kinds of fire extinguishers, custom-made fire cabinets, heavy-duty fire hoses and reels, high capacity powerful fire pumps, mobile fire fighting systems including Compressed Air Foam Systems (CAF), fire-rated doors, fire detection and alarm systems, Closed Circuit Television (CCTV), ambulances, extendable mobile hospitals, platform vehicles, rescue vehicles, fire trucks, and most advanced Airport Rescue and fire fighting (ARFF) vehicle. “Mission of the company is to empower customer to secure life, property and business by delivering high quality and innovative fire protection solutions and knowledge using world class manufacturing processes through best engineering practice and expand worldwide”. ii. GOALS I was able to frame some learning goals during the internship with the guidance and assistance from the industry guide.  To learn the basic concepts and relevant information about supply chain management.  To understand the processes and functioning of supply chain areas in the company.  To get experience and collect data in an environment that is new to me.  To identify the gaps in the existing process.  To review and analyse the existing process.  To propose changes that will improve the performance of existing process. With guidance and assistance from the faculty guide, my goal was to use the skills and knowledge that I gained at work, to organize and write the project report. This report is organized as follows. Chapter I focus is on concepts and relevant information that are related to supply chain management, supply chain efficiency and responsiveness, improving supply chain efficiency and responsiveness, measuring performance of supply chain, challenges and risks of supply chain management. Some
  12. 12. 5 additional relevant information which is important to understand and to connect to the topic of supply chain management has also been highlighted in this chapter. Chapter II emphasizes on the literature review and research problem. Chapters III and IV describes the research methods and analysis. Final part of the report comes up with discussion, suggestion and conclusion on the topic of study. I.2 CONCEPTS AND RELEVANT INFORMATION - SUPPLY CHAIN MANAGEMENT i. BACKGROUND Lot of confusion prevails about when and by whom the term "Supply Chain Management" was first mentioned and used. There is some evidence about when it was first seen in print. It was first seen in an article published in the German business magazine "Wirtschaftswoche" in 1982. According to Partsch, in 1979/1980 a small team of consultants in the Operations Group of Booz Allen & Hamilton in Europe coined the phrase of "Supply Chain Management". A Pan-European Supply Chain Strategy plus implementation project for the company Landis & Gyr (today integrated into Siemens) in Zug, Switzerland was performed in the years 1980 - 1981 and later published in the German business magazine "Wirtschaftswoche" in 1982. The term “Supply Chain Management” SCM entered public domain when Keith Oliver, a consultant at Booz Allen Hamilton, used it in an interview with the Financial Times in 1982. ii. DEFINITION APICS the Association for Operation Management defines supply chain management as: “The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally”
  13. 13. 6 iii. DECISION PHASES Decision phases required for a successful supply chain management  Design or strategy  Planning  Operation In the design or strategy phase, decisions about resource allocation, processes to be performed at each stage, location and capacities of production and warehousing, outsourcing, transportation modes and the type of information system to be utilized are made. The planning phase includes uncertainties in demand, exchange rates, competition etc. A set of operating policies that govern short-term operations are defined as a result of the planning phase. The goal during the operation phase is to exploit the reduction of uncertainty so as to optimize performance. In this phase, inventory or production is allocated to individual orders, date is set against an order to be filled, pick lists are generated at warehouse, allocation of order to shipping mode and shipment, setting delivery schedule of trucks and placing replenishment orders take place. iv. SUPPLY CHAIN A supply chain means all parties which include suppliers, sales and marketing, procurement, stores and purchase, transport and logistics, manufacturing, finance and operations, human resources, information technology, quality control, distribution, retailer, customer, customer care and service that are directly or indirectly involved in fulfilling a customer request. Stages in a supply chain are connected by the flow of information, products and funds in both directions. The objective of every supply chain should be customer satisfaction. The strategic objective of every supply chain aims at maximizing the overall shareholder value by maximizing return on investment made by
  14. 14. 7 the investors. The fact is that the customer is the only source of revenue for any supply chain. I.3 SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS i. DEFINITION A supply chain is considered to be efficient if the focus is on cost reduction and there is no wastage of resources and also if there are no non-value added activities (Naylor, Naim and Berry, 1999, p.108). “The ability to react purposefully and within an appropriate time-scale to customer demand or changes in the market place, to bring about or maintain competitive advantage” can be defined as responsiveness (Holweg, 2005, p.605). ii. INDICATION As products go through their life cycle there is a change in demand characteristics and the needs of the customer segments being served. As the product and production technologies mature the supply characteristics also change. Beginning stages of a product’s life cycle:  Uncertain demand  Unpredictable supply  Time is crucial to gaining sales  Product availability is crucial to capturing the market  Cost is a secondary consideration In these situations responsiveness is the most important characteristics of the supply chain. Later stages of a product’s life cycle:  Demand becomes certain  Supply is predictable
  15. 15. 8  Increase in competitive pressure  Price becomes a significant factor in customer choice In these situations efficiency is the most important characteristic of the supply chain. TABLE 1 - COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS Efficient supply chains Responsive supply chains Primary goal Supply demand at lowest cost Respond quickly to demand Product design strategy Maximize performance at a minimum product cost Create modularity to allow postponement of product differentiation Pricing strategy Lower margins because price is a prime customer driver Higher margins because price is not a prime customer driver Manufacturing strategy Lower costs through high utilization Maintain capacity flexibility to buffer against demand/supply uncertainty Inventory strategy Minimize inventory to lower cost Maintain buffer inventory to deal with demand/supply uncertainty Lead time inventory Reduce, but not at the expense of costs Reduce aggressively even if costs are significant Supplier strategy Select based on cost and quality Select based on speed, flexibility, reliability and quality
  16. 16. 9 I.4 IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS i. STRATEGIC FIT Strategic fit refers to consistency between the customer priorities that the competitive strategy hopes to satisfy and the supply chain capabilities that the supply chain strategy aims to build. There are three basic steps to achieving the strategic fit:  Understanding the customer and supply chain uncertainty  Understanding the supply chain capabilities  Restructure the supply chain or alter the competitive strategy Uncertainty: Customer or demand uncertainty reflects the uncertainty of customer demand for a product. Demand uncertainty can be reduced by the following means:  Improve forecasting by using better market intelligence  Reduce replenishment lead time  Postponement of product differentiation to the point of sale in a multiproduct setting  Tailored sourcing – low lead time but costly supplier as a backup for long lead time but low cost supplier
  17. 17. 10 TABLE 2 - IMPACT OF SUPPLY SOURCE CAPABILITY ON SUPPLY UNCERTAINTY Supply source capability Causes supply uncertainty to Frequent breakdowns Increases Unpredictable and low yields Increases Poor quality Increases Limited supply capacity Increases Inflexible supply capacity Increases Evolving production process Increases Source: Adapted from “Aligning Supply Chain Strategies with Product Uncertainties” Hau L. Lee, California Management Review (Spring 2002), 105-19. Capabilities: Supply chain capabilities can be understood by studying the supply chain responsiveness.  Respond to wide ranges of quantities demanded  Meet short lead times  Handle a large variety of products  Build highly innovative products  Meet a high service level  Handle supply uncertainty FIGURE 1 - THE RESPONSIVENESS SPECTRUM Highly efficient Somewhat efficient Somewhat responsive Highly responsive Highly efficient - Production scheduled weeks or months in advance with little variety or flexibility Somewhat efficient – Make to stock manufacturer with production lead time of several weeks
  18. 18. 11 Somewhat responsive – Delivering a large variety of products in a couple of weeks Highly responsive – Changing merchandise mix by location and time of day Increasing implied uncertainty from supply sources and customers is served best by increasing responsiveness from the supply chain. FIGURE 2 - FINDING THE ZONE OF STRATEGIC FIT (RESTRUCTURE) Responsive supply chain Responsiveness spectrum Zone of strategic fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand A given level of responsiveness can be achieved in a supply chain by adjusting the roles of each stage of the supply chain. It is important to remember that:  No supply chain strategy is always right  For a given competitive strategy there is a right supply chain strategy Just like product life cycles, competitors can also change the setting. This calls for a change in competitive strategy of the firm. When competitive strategy of the firm is changed, the supply chain strategy must also be changed to maintain strategic fit. In this context it is very crucial for managers to understand the impact of obstacles to achieve strategic fit which is critical to a company’s ability to reap the optimum performance from its supply chain.
  19. 19. 12 The main obstacles are:  Increasing variety of products  Decreasing product life cycles  Increasingly demanding customers  Fragmentation of supply chain ownership  Globalization  Difficulty in creating and executing new supply chain strategies  Currency conversions at different times  Data is unavailable  Data is available but in incompatible format  Different unit types of the data  Same information is recorded in different ways  Software specifications that rely on different internal data formats  Too much of unwanted and non-actionable raw data that misses the important details  Data gaps especially of tracking between supply chain partners I.5 IMPACTS OF IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS The least expensive and least time-consuming activity that will show the improvement in supply chain operations is by identifying, developing and implementing performance measurement systems and performance metrics. i. PERFORMANCE MEASUREMENT SYSTEMS To develop and maintain a supply chain performance measurement is one of the main challenges faced in supply chains. Supply chains most often consist of different departments, each reporting to different supervisors and managers and they in turn having its own top management. If this is the nature of supply chain, then metrics, measurement and improvement system should be based on transparency to achieve supply chain performance and profitability.
  20. 20. 13 Some of the influential performance measurement systems are:  Balanced Scorecard Model (BSC)  Performance prism (PPR)  Productivity Measurement and Enhancement System (ProMES) BSC model was created by Kaplan and Norton (1992) of the Harvard Business School. This model complements the traditional financial performance measures with key performance indicators (KPIs) in non-financial areas. The building blocks of BSC are:  Financial – ROI, ROCE, EVA  Customer – Customer satisfaction and market share  Internal process – Processes that have greatest impact on customer satisfaction and financial performance  Learning and growth – long term improvement through people, systems and organizational procedures PPR is a three dimensional model in the shape of a prism developed by Neely and Adams (2000). This model looks at five distinct yet logically interlinked performance perspectives. They are:  Stakeholder satisfaction – which are the key stakeholders and what are their wants and needs?  Strategies – what strategies are required to satisfy the wants and needs of the identified stakeholders?  Processes – what processes are required to execute these strategies?  Capabilities – what are the capabilities in terms of people, practices, technology and infrastructure required to operate and enhance these processes?  Stakeholder contribution – what is the contribution needed from the key stakeholders if we want to maintain and develop these capabilities?
  21. 21. 14 ProMES was developed by Pritchard (1990). This system is built around the theory of work behaviour and motivational forces. Motivational force of a person according to Pritchard is the result of a person’s acts, products, evaluations, outcomes and need satisfaction. ProMES is a bottom up approach where people are really involved in designing the system. But the disadvantage is that the level of contribution is already set and therefore it could result in non-alignment of PMS of business units with company’s PMS. ii. PERFORMANCE MODEL - SCOR MODEL The Swedish firm IKEA developed a performance model called “the product management model”. This model consists of measures within five different areas:  Product range  Cost  Quality  Availability  Service A list of commonly used metrics that are endorsed by the SCOR model:  Delivery in full  Delivery on time  Delivery in specification  Fill rate for stock  Lead time  Production flexibility  Total cost  Realized margin  Warranty costs  Return processing costs
  22. 22. 15 A company should focus on the metrics which reflects its customer needs and market realities rather than focusing on best practice norms in the industry. The challenge is to integrate functional performance measures to overall performance of the supply chain. The management’s attention and willingness is required to share information with other supply chain members. It must be understood that working together is the only way that organizations can better satisfy customer requirements for quality, cost, product and service which will enable optimizing the supply chain performance. iii. OPTIMIZATION Optimization assures to develop a company’s supply chain performance in many ways:  Reduced supply chain costs  Improved product margins  Reduced inventories  Increased manufacturing throughput  Enhanced return on assets Some rules for supply chain optimization  Quantify and measure objectives  Required processes should be represented by models  Consider variability  Data should be accurate, well-timed and complete  Fully automated data transfer should be integrated  Solutions should facilitate execution, management and control  Algorithms should be capable to exploit individual problem structure  People expertise in domain and technology is required to support the models, data and optimization engines  Process should have the ability to continuously improve and support optimization
  23. 23. 16  Considering the total cost of technology, people and operations ROI should be provable Companies will be at a significant disadvantage if they can’t tell in real time what is happening in their supply chains. They will be:  Unable to mitigate the bullwhip effect since they can’t recognize the disruptions and anomalies  Forced to react to complex situations since they can’t recognize the full extent of adverse effects Companies can enjoy the following competitive advantages if they synchronize supply chain and have real time data. They are:  Minimize the bullwhip effect  Easier planning  Visibility to partner systems  Visibility allows collaboration and cooperation between partners  Back end processing, modifications and updates can happen as decisions are being made  Changes and expansion in supply chain software Successful optimization of supply chains requires:  Technology that utilizes enterprise assets to synchronize data among various operating units and trading partners in the supply chain  High speed, high performance, scalable, reliable data transfer and message delivery  Strong security and governance quality that does not interfere with real time data transfer
  24. 24. 17  Solution that must be able to plug in all major supply chain management solutions like CRM, SRM, and ERP manufacturing package, logistic pipelines, carrier data systems and transportation planning systems  Solution that must be capable of integrating any legacy on custom planning, manufacturing, distribution and accounting systems in to the supply chain ecosystem  Business process automation, standardization, exception monitoring and reporting  Complex event processing technology for pattern recognition by measuring against historical norms or metrics  Intelligent data presentation and visualization capabilities in concise and actionable form in dashboard or in a portal, alarms, alerts, reports and data screens by use of KPIs and scorecards  Integration of these displays with analytics packages for on the spot analysis I.6 CHALLENGES AND RISKS IN IMPROVING SUPPLY CHAIN EFFICIENCY AND RESPONSIVENESS Reliable end to end supply and demand planning has become increasingly challenging because of erratic macroeconomic cycles of growth, contraction and recovery. Customers are tightening their requirements in terms of throughput time and perfect order delivery while simultaneously demanding cost reductions especially in B2B business relationships. Supply chain executives face a range of challenges such as profitability, cost management, supply chain flexibility, competitive pressures, customer requirements, volatility, skills gaps and sustainability. Top supply chain leaders have used these three drivers to cope with these challenges. They are:  Perfect order delivery  Cost reductions  Supply chain flexibility
  25. 25. 18 Four distinct categories of supply chain risk Macro-economic risks – Businesses are able to access less expensive labor and materials and opening up new markets as a result of globalization. But globalization also increases supply chain complexity and magnifies the impact of supply chain disruptions caused by natural disasters, political turmoil, piracy and regional economic crisis. Extended value chain risks – On one hand outsourcing has improved efficiency and allowed businesses to focus more attention on their core competencies but on the other hand it has also made operations more complex and exposed to third-party risks. Operational risks – Although lean manufacturing, just-in-time inventory and capacity rationalization have increased supply chain efficiency and responsiveness but by reducing the slack in the network, and having reduced the error margin they still have amplified the disruptive potential of whatever problems happen to arise. Functional risks – are risks which are related to functions that support supply chain activities, such as Finance and Accounts, Human resources, Legal and Information Technology. Any disruption or breach in the critical applications and systems by which the supply chains are enabled and accumulated can have an immediate impact on the customer experience. I.7 CORRESPONDING INFORMATION THAT IS RELEVANT TO SUPPLY CHAIN MANAGEMENT i. INFORMATION TECHNOLOGY SYSTEMS Sharing the data to what is truly required can decrease investment in IT and can improve the chances of successful collaboration. The task of supply and demand management is often divided into different functions in most companies. Sales and marketing typically manage demand while operations manage supply. It is important that these functions are coordinated to plan for predictable viability together. During the process of getting new IT systems running, a firm is forced to move from the old processes it used in its operations in its IT systems. Problems can be found in both business processes and
  26. 26. 19 technical issues. Most often, because top management is not actively involved in making the transition it is difficult to get the entire organization on board with the changes brought about by a new IT system. The new system may be unable to perform as promised and may even perform worse than the old system if a firm moves to a new system without proper integration. Three points to keep in mind while implementing IT systems:  Install new IT systems in an incremental manner  Firms should run duplicate systems to make sure the new system is performing well.  Level of complexity should be only that one needs Operational mitigation strategies include:  Data backup systems  Security software products ii. INFORMATION AND COORDINATION Information must have the following characteristics for making supply chain decisions useful:  Information must be directionally accurate  Information must be easily accessible  Information must be important and meaningful Supply chain coordination requires that each stage of the supply chain should take in to account the impact its actions have on other stages. When different stages of the supply chain have different objectives or when there is delay or distortion of information between stages then a lack of supply chain coordination occurs. In order to achieve coordination of the supply chain, managers must monitor the following:  Align goals and incentives across functions
  27. 27. 20  Improve information accuracy by sharing POS data, collaborate forecasting and planning, design a single stage control of replenishment  Improve operational performance by reducing lot sizes and replenishment lead times  Stabilize pricing by moving from lot size to volume based or rate of purchase quantity discounts (If manufacturer does not incur a very high fixed cost per order, it is better for the supply chain to have volume-based discounts)  Build cooperation, trust and strategic partnerships within the supply chain  Quantify the bullwhip effect  Get top management commitment for coordination  Focus on communication among stages of supply chain  Efficient use of technology to improve visibility and connectivity in the supply chain  Share benefits of coordination equally among stages and partners of supply chain The key obstacles which managers should identify to help achieve coordination:  Incentive obstacles  Information processing obstacles  Operational obstacles  Pricing obstacles  Behavioural obstacles Incentive Obstacles: When incentives are offered to different participants or stages in a supply chain it leads to actions which increases variability and reduces total supply chain profits. These situations give rise to incentive obstacles. Information Processing Obstacles: occur when demand information is delayed or distorted between various stages of the supply chain, leading to high variability in orders within the supply chain. For instance, forecasting that is based on orders and not customer demand and that lacks information sharing.
  28. 28. 21 Operational Obstacles: When actions taken in the course of placing and filling orders lead to an increase in variability it is called as operational obstacles. E.g. ordering in large lots, large replenishment lead times, rationing and shortage gaming. Variability of orders is magnified up the supply chain whenever a firm places orders in lot sizes that are much larger than the lot sizes in which demand arises. A retailer will incorporate an anticipated growth over two weeks when placing the order if he has misinterpreted random increase in demand as a growth trend and at the same time faces a lead time of two weeks. The rationing scheme is a game in which retailers try to increase the size of their orders to increase the amount supplied to them. A manufacturer who uses orders to forecast future demand will interpret the increase in orders as an increase in demand even though customer demand is unchanged. The manufacturer will therefore respond by building enough capacity to be able to fill all orders received. Once all orders return to normal level the manufacturer is left with a surplus of product and capacity. Pricing Obstacles: When an increase in variability of orders placed occurs as a result of pricing policies. E.g. lot size based quantity discounts and trade promotion discounts. Behavioural Obstacles: Problems related to the way in which supply chain is structured and the way communication occurs between different stages are caused by behavioural obstacles. Some of the behavioural obstacles are:  Each stage views its action closely and separately  Each stage is unable to see the impact of its actions on the other stages  Stages of supply chain react to their current situations  Stages in supply chain do not try to identify the root causes of a situation  Different stages of supply chain blame each other for fluctuations rather than working together as partners  Stages of supply chain do not learn from their local actions because the consequences of their action occur elsewhere in the supply chain
  29. 29. 22  Supply chain partners become opportunistic when there is lack of trust and it results in duplication of efforts and lack of information sharing  All the above happens at the expense of supply chain performance
  30. 30. 23 CHAPTER - II II.1 LITERATURE REVIEW i. INTRODUCTION The literature review shares limited insights and evidences that are fundamentally allied to the research problem and questions that are summarized and proposed in the last part of this section. To successfully satisfy the needs and demands of customers means; the extent to which the business can make the customers happy and delighted with their products and service. Increasingly, companies today are realizing the financial gains of optimizing the supply chain performance by integrating with suppliers and customers. The economic uncertainty and global competition in today’s market scenario calls for a serious look into the optimization of the supply chain performance. It is a fact that there is a lack of availability of useful timely data, information sharing and poor visibility across the supply chain which is indispensable for turning the supply chain into a competitive benefit. It is also evident that there is a lack of systems to measure performance and benchmark supply chains which results in failure to meet customer expectations and satisfaction and optimization of a company’s performance. These are some of the main conflicts that today’s Supply Chain Managers face in many of the enterprises worldwide. The objective of optimizing supply chain performance can be achieved when there is coordination wholly at all stage of supply chain which is mainly based on information sharing. The performance of any supply chain is often determined by three logistical drivers which are facilities, inventory, transportation and the three cross-functional drivers that are information, sourcing and pricing. The evolution of new forms of organizations such as virtual enterprises, global manufacturing and logistics places flow coordination and information sharing of supply chains as strategically the most important element in managing the performance of any business.
  31. 31. 24 FIGURE 3 – END-TO-END PROCESS CHAIN ii. FLOW COORDINATION, INFORMATION SHARING AND VISIBILITY A research conducted by Anand and Mendelson (1997) considers four coordination structures: (1) Centralized, using all data but none of the local knowledge; (2) Decentralized, each market using all data and local knowledge; (3) Fully distributed, all data are shared so that each branch can make decisions based on its own knowledge and all available data in the system; (4) No information, only local knowledge is used in decentralized decision environment. Anand and Mendelson (1997) studied the impact of these coordination structures on the performance of a firm. They found that fully distributed coordination structure does better than decentralized and centralized system. The performance of decentralized system dominates in a number of cases than the superior coordination of the centralized system. The centralized system does better where local knowledge is of little value for a small number of markets
  32. 32. 25 Lee et al. (1997) suggested channel coordination, operational efficiency and information sharing to improve the overall supply chain performance. Current research often emphasizes a single coordination mode as the act of managing specific objects such as interdependent processes, information and knowledge. Little attention has been given to exposing different coordination modes and their interactions. An extensive study conducted by Chen (1998) reveals that the costs of centralized information system are on lower than the decentralized information system. Cachon and Fisher (2000) study and compare two information-technology-related sources of supply chain improvement and the value of sharing real-time demand information. Results revealed that full information sharing reduces system. The authors conclude that while information sharing reduces costs, flowing goods through supply chain faster and in smaller batches gives much greater savings. Repeated emphasis is given in literature to the increased importance of information systems to support supply chain integration (Pant et al 2003, Bendoly and Kaefer 2004, Gunasekaran et al 2004, Gunasekaran and Ngai 2004, Gunasekaran et al 2005, Kelle and Akbulut 2005, Akyuz and Rehan 2009). The virtual integration of the entire supply chain to facilitate the coordination among different functions is done by e-supply chain management. (Gimenez and Lourenco 2004) refer to the impact that internet has on the integration of key business processes that provide products, services, information and add value for customers and other stakeholders from end user to original suppliers as e-SCM. Lee and Whang 2000, Xu, Doug et al. 2001, Yu, Yan et al. 2001, have found great influences on supply chain performance, particularly in reducing the bullwhip effect as a result information sharing. Lee 2000, Mentzer 2004 says for companies to be more responsive to customer’s demands there should be better management of information. Cooper et al (1997) suggest that partners which companies want to be closely integrated need to be carefully determined. Raghunatan (2003) found that when demands amongst retailers are independent, the supplier will include more sharing partners because the value of information sharing will significantly increase.
  33. 33. 26 Lau et al (2002) examined four combinations of sharing demand and inventory levels. The highest total supply chain cost when compared to no information sharing at all occurred when demand and inventory levels were shared only between retailers and distributors. In full sharing mode the gain was highest. It is noted that information sharing did not benefit all firms. Huang and Gangopadhyay (2004) studied and analysed three scenarios in a four stage supply chain comprising of customers, retailers, distributors, wholesalers and manufacturers. The three scenarios are: 1) No information sharing 2) Partial information sharing 3) Full information sharing Decreased inventory levels at wholesalers were seen with higher degree of information sharing. When demand is volatile the benefits are more. Smaros et al (2003) studied a three level supply chain in which the manufacturer used a combination of order data from non-vendor managed inventory customers and sales data from vendor managed inventory (VMI) customers in its production planning. The study showed that for products with low replenishment frequency, manufacturers benefit from even a little increase of involvement and information sharing. Mentzer (2004) states that all supply chain partners cannot be included in information sharing. Huang et al (2003) classified product information into six categories pertaining to product, process, resource, inventory, and order and planning.
  34. 34. 27 TABLE 3 - CLASSIFICATION OF PRODUCT INFORMATION (HUANG, LAU ET AL 2003) Category Product information Product Product structure Process Material lead time Lead time variance Order transfer lead time Process cost Quality Shipment Set-up cost Inventory Inventory level Holding cost Backlog cost Service level Resource Capacity Capacity variance Order Demand Demand variance Order batch size Order due date Demand correlation Planning Demand forecast Order schedule Forecasting model Time fence Lee, So and Tang (2000) found that when demand correlation is high over time, highly variable, or the lead-time is long then information sharing has more value. By sharing forecasts of demand of products that have high demand variability significant benefits
  35. 35. 28 can be achieved (Angulo, Natchmann et al 2004). The relationship between trading partners influences the selection of the type of shared information. Part inventories can be reduced without risking stock-outs by sharing production schedules with part suppliers. Lee and Whang (2000) showed that new product development can be facilitated by sharing information and close coordination between retailers and manufacturers. More research is needed to identify what information should be shared with supply chain partners that give most benefits. Two main attributes of information identified by researchers are timeliness and completeness of information. Bourland et al (1996) found that sharing demand information daily can decrease supplier’s expected inventory cost especially if demand variability is high. Companies might not want to share detail data with partners as they fear that it might weaken a company’s negotiating position by leaking of data to their competitors. Studies show that when trading partners are given incentives in various forms such as lower wholesale prices, flexible payment terms etc. companies gain a lot from sharing information (Bourland, Powell et al 1996; Yu, Yan et al 2001; Mitra and Chatterjee 2004). Further investigation is needed to know how to share the benefits of information sharing amongst partners. Kulp et al (2004) did a survey and found that highest profit margin companies exchange information and also continue it with close collaboration. Work realignment can be effective once information sharing is in place. Work realignment is basically redistribution of physical activities among members of supply chain. A cultural shift in organization to treat supply chain partners as parts of organization is needed for work realignment. When past behaviours such as functional thinking silos still persist with people in the organization, significant benefits from information sharing will not happen. People can impede or facilitate collaboration is argued by Mentzer (2004). ‘The bullwhip effect” is the phenomenon in which information is distorted in such a way that it differs greatly from the end customer’s demand (Lee, H.L., V. Padmanabhan, and S. Whang 1997). Better demand forecasting and more accurate production planning can
  36. 36. 29 be achieved by sharing the actual sales data and inventory information with upstream partners in the demand-supply network leads to (Lee, H.L., V. Padmanabhan, and S. Whang 1997). Researchers agree that the performance of supply chain can be improved by increased visibility (Cachon G.P. and M. Fisher, 2000, Lee, H.L. and S. Whang, 2000, Grean, M. and M.J. Shaw, 2000, Kulp, Susan Cohen, Lee, Hau L., Ofek, Elie, 2004, Raghunathan S.2003, Yu, Z., H. Yan, T.C.E. Cheng, 2001). They have proved the benefits as improved inventory management, higher sales and better understanding of demand. “The sharing of all relevant information between supply chain partners, also over echelons in the supply chain” is defined as end-to-end visibility (Lakervi, Helena, 2003). As none of the supply chain partners have control over data, Points of sale (POS) data represent independent demand. Data gathered from POS should be used as a basis to forecast. is that, As items may not be scanned in the system on an individual level, or returns may be handled improperly, the information collected may be inaccurate which is the downside of using POS data (Fisher, M.L., A. Raman, and A.S.McClelland, 2000). In many cases, is more important to suppliers give more importance to the visibility to demand plans and production plans than the actual demand from downstream. The bullwhip effect can be reduced but not completely eliminated by centralizing demand information (Disney, S.M. and D.R. Towill 2003a, Disney, S.M. and D.R. Towill 2003b). Frequent communication can help the supplier to plan its operations better as the responsibility for replenishments is shifted from retailer to supplier (Kaipia, R., J. Holmström, and K. Tanskanen, 2002). When compared to other information sharing levels demand information-sharing can make it possible to reduce costs by 1-35% and decrease inventory levels by 53% (Gavirneni, S., R. Kapuscinski, and S. Tayur 1999). Forecast information-sharing is valuable to retailer and demand information-sharing is not that beneficial if variance in demand data is high (Mishra, B.K., S. Raghunathan, and X. Yue 2001). Information-sharing becomes more valuable with high production capacity tightnesss (Zhao, X., Xie, J. and W.J. Zhang 2002). Christopher and Lee claim that supply chain synchronization is possible by improved visibility which increases
  37. 37. 30 confidence and reduces uncertainty in supply chain. When lead times are long visibility to plans are especially important. iii. PERFORMANCE MEASUREMENT The measurement of performance in a supply chain is vital. Gunasekaran and Kobu (2007) list the following as the purpose of a performance measurement system:  Better process understanding  Identification of bottlenecks  Identifying waste  Identifying problems  Identifying opportunities for improvement  Identifying if customer needs are met  Identifying success  Facilitation of open and transparent communication and co-operation  Enabling progress  Tracking progress Performance measurement is “measuring actual results which is vital in strategy formulation and communication and in forming diagnostic control mechanisms” (Wouters 2009). A US case-based study conducted by Swafford et al (2008) reveals the “domino effect” among IT integration, supply chain flexibility, supply chain agility and competitive business performance. Domino effect means a small disruption anywhere in the supply chain affects the entire chain. Inventory, cycle time and financials are the performance measures discussed by Martin and Patterson (2009). Gunasekaran and Kobu (2007) support and highlight the confusion to classification of metrics in literature and lack of complete coverage of all performance measures. The need of a new performance measurement and costing system is a direct justification of their work. Combining economic value added (EVA), the balanced scorecard (BS) and activity based costing (ABC) is suggested as an integrated approach for measuring supply chain performance, by Yao and Lin (2006). Bernardes and Zsidisin (2008) focussed their investigation on the concept of embeddedness and network scanning in relation of strategic supply chain to performance. Their work is supported by rigorous statistical
  38. 38. 31 analysis involving a survey-based study made in US manufacturing. Embeddedness is characterized by trust, open communication and joint problem solving. Network scanning is related to scanning of internal and external business environment. McCormack et al (2008) conducted a study that compares traditional versus innovative performance measurement systems. The base for this study is the supply chain operations reference (SCOR) model (plan, source, make, deliver) and the business process orientation maturity model of McCormack and Lockamy (2004). All research in the area of process maturity and performance relation provides clear evidence that there is still search for models which have direct correlation with performance. The failure to develop the performance measures and metrics needed to fully integrate supply chains to maximize effectiveness and efficiency in many companies in today’s competitive age has been highlighted by Gunasekaran et al (2004). The main problems in performance management have been pointed out by Gunasekaran et al (2004) and Gunasekaran and Kobu (2007). They are:  Being too much inward looking  Strategy and the measurement connect failure  Large number of metrics  Biased focus on financial metrics  Lack of balanced framework (some concentrating on financials and others concentrating on operational measures)  Performance measurement and metrics that are incomplete and inconsistent Cai et al (2008) state that these measurement systems cannot provide for a definite cause- effect relationship among numerous and hierarchical individual key performance indicators (KPIs). McCormack et al (2008) compare the traditional and innovative performance measurement (PMS).
  39. 39. 32 TABLE 4 - COMPARISON OF TRADITIONAL V.S. INNOVATIVE PMS Traditional PMs Innovative PMS Based on cost/efficiency Based on value Trade-off between performances Compatibility of performances Profit oriented Client oriented Short term orientation Long term orientation Individual metrics prevail Team metrics prevail Functional metrics prevail Transversal (HR and training) metrics prevail Comparison with the standard Monitoring of improvement Aimed at evaluation Aimed at evaluation and involvement Source: McCormack et al (2008) The literature items mentioned above clearly shows that significant changes are required over traditional performance measurement and the existence of deficiencies in the current performance measurement systems iv. CONCLUSION The above studies indicate that impact of coordination structures, information sharing and visibility at all levels and partners and performance measurement of supply chain is a very profitable area for further research. There is no single model and a standard set of metrics which are tested and validated across different industries. Though many investigations reveal the significant benefits of flow coordination, information sharing and visibility in supply chains lot many questions need to be answered. All the research is mainly theoretical and typically does not address the problems of implementing information sharing and performance measurements in practice. v. RESEARCH PROBLEM AND RESEARCH QUESTIONS The research problem in question is of delivering products to customers as and when they desire and demand at the lowest total cost and highest profit.
  40. 40. 33 Based on the review of literature presented in the above section the following research questions can be probed:  What is the impact of coordination structures on performance of a firm?  What are the information technology related sources of supply that helps in lowering costs?  Should information be shared with all or some select partners?  What information should be shared and how often and when should it be done?  Should detail information be shared or must be censored?  How the benefits of sharing information amongst partners can be shared?  What are the main barriers of implementation amongst partners?  How to implement information sharing?  How to measure the suitability and performance of information technology in supply chain management?  What are the performance measurement tools and metrics in this era?  How can the performance measures be tested and validated?  How to suggest models to enable benchmarking supply chains? The research questions should be considered and reconsidered time and again in a world that is currently dominated by globalization, uncertainties, huge competition, customer expectation and satisfaction.
  41. 41. 34 CHAPTER - III III.1 RESEARCH METHODS AND PROCEDURES i. PURPOSE  To identify the best way to learn about the supply chain management process  To gather information about the existing process  To establish a factual base for analysis centered on the understanding from the information gathered  To know how the process can be evaluated  To find a process improvement system based on a model ii. RESEARCH DESIGN  Case study – Qualitative and Exploratory iii. METHODS OF DATA COLLECTION  Face to face interviews (unstructured)  Observation  Assessment questionnaire for review  Document review  Literature review  Book review iv. SAMPLING  Judgment  Snowball  Convenience v. PARTICIPANTS  Managers  Coordinators  Section in charges
  42. 42. 35 vi. TYPE OF DATA COLLECTED  Attribute type vii. DATA ANALYSIS  Data reduction  Data display  Conclusion viii. FINDINGS  Many functional areas do not make any forecasts  Few functional areas make their own forecast  Forecasts are made based on judgment and experience  Functional areas are unable to give a correct delivery date for delivery  Deliveries are managed in response to call of urgency from customer  Numerous iterations and modifications occur at the stage of sales order  Too many item codes are there for products, which causes difficulty and confusion in identification  Item terminology is different at customer level, manufacturer level and supplier level  All new products do not have new item codes  Non-moving items are still in the system which adds to the confusion at the stage of sales order  No category for substitute items in the system  What is a nonstandard item – not defined  When does it cease to be a nonstandard item – not clear  When does a standard item cease to be moving item – not monitored  Cancellation of sales orders are not informed to the other functional areas in the chain  Delayed, duplicated and avoidable manual - control approvals have been observed  Lack of coordination and integration between functions and partners in the supply chain  System visibility and integration is inadequate
  43. 43. 36  Converting option direct from purchase order to sales order is not there for all customers  Too many emails, phone calls and personal visits between functional areas have been noticed  Long supplier lead times  Raw material shortage  Packing material shortage  Occasional stock out of few standard items  Inventory holding of non-moving items is seen  No demand planning  No production planning and scheduling  Details of work order not visible in system for sales and operations  No time frame for each function  Information sharing at stages and between partners is inadequate  Catalogues are not updated  Catalogues do not have item codes  Prior information about change in government regulations, obsolete brand is unavailable  Material returns are relatively more  Reasons for material returns are replacement, item not required, changes in drawing, unapproved items and balance items after project completion  Return items that are non-moving continue to be in warehouse  Time lag between delivered status in the system to actual shipment is noticed  Delays in custom clearance especially for Kingdom of Saudi Arabia (KSA) exports  There are conditions of time delay between pick status and invoice  There are cases of time delay between pick and delivery status of sales order  Manual copies of approved slips and orders are needed in most cases in spite of ERP system in place  100% Quality check (QC) testing of few products is essential yet time consuming
  44. 44. 37  Most of the customers do not prefer partial deliveries, even when few items are available when approved sales order is ready  Bill of quantity is not incorporated through system  No partnering with customers  No collaborative planning with suppliers  Linear sequence of processing is too slow  Waiting times between chain segments are excessive  Existence of non-value added activities  Slow delivery of paper documents  Repeat process activities due to wrong shipments, poor quality  Batching; accumulate work orders between supply chain processes to get economies of scale; save on delivery)  Learn about delays after they occur, or learn too late  Excessive administrative controls such as approvals (signatures  Lack of information, or too slow flow  Lack of synchronization of moving materials  Poor coordination, cooperation and communication  Delays in shipments from warehouses  Redundancies in the supply chain. Too many purchasing orders, too many handling and packaging  Obsolescence of parts and components that stays too long in storage  Separate units  Too many order management employees  Decentralized supply chain departments  Data inadequacies  Order communication cycle time is long  Order processing cycle time is long  Order routing is inadequate  Integrated firm wide data base is not there
  45. 45. 38  No fully automated order management system  Component order selection is not there  Order queuing is not there  Order inaccuracy  Order cancellation  No delivery date guarantee  Customer service levels is poor  Back orders are many  Split orders are few  Sample orders are very few  Partial delivery is limited  Changes to sales order are more  Double check of sales order by superior or co-worker is not there ix. LIMITATIONS  Short time frame  Busy managers and staff  Restrictions on data sharing  Sample size  Single case study x. CHALLENGES  One/Multiple supplier/s?  Stocking locations, many, where?  Lead times, many?  Supply, variable?  Demand, variable?  Centralized or decentralized?  Order – daily, weekly, monthly, quarterly?
  46. 46. 39  Forecasting method?  Classifying products?  Customer segments?  Service levels?  Planning – daily, weekly, monthly, quarterly?  Buffer stocks?  Obsolete stocks?  Performance measures?
  47. 47. 40 CHAPTER - IV IV.1 ANALYSIS i. TOWS ANALYSIS Internal strengths  Wide scope of business  Market leader in Gulf and MENA region  No immediate and strong competitor  Broad product range  Global business  Potential of manufacturing  Production units abroad  Quality products  Leadership focused on improvement  Dedicated and excellent engineers and technical experts  Highly motivated staff  Training and development programs  ERP application  Huge potential with the introduction of Value Chain Planning Internal weaknesses  No standard operating procedures  Unclear roles and responsibilities  Supply chain activities and functions in silos  Poor visibility  No information sharing  Poor flow coordination  Ineffective use of ERP systems  Unnecessary non value added tasks  Incomplete and inaccurate data  Supply chain disruptions  Poor integration of customer, manufacturer and supplier  Improper product and sub-product classification  No planning  No performance measurement system  Resistance to change  Under-utilized CRM and
  48. 48. 41 manufacturing software modules.  Inadequate plan on segmentation, targeting and positioning of market External opportunities  New and emerging markets  Growing affluent market demands  Present economic recovery and boom period in the geographic region SO: (maxi-maxi)  Designing new products  Demand planning  Stringent supplier evaluation and selection  Sales force training WO: (mini-maxi)  Change management  Align planning with strategy  Educate employees on supply chain  Re-engineer processes for effective implementation and monitoring of supply chain system External threats  Economic and political instability  Government regulations  Trade regulations  Customs regulations  Competition  Substitute products  New products ST: (maxi-mini)  Lean manufacturing  Reduce inventory levels  Reduce order delivery time  Reduce supplier lead time  Market intelligence WT: (mini-mini)  Overcome the weakness and threats by effective planning  KPIs for entire supply chain  Monitor and measure supply chain performance
  49. 49. 42 IV.2 EXISTING SUPPLY CHAIN PROCESS FLOWCHART i. AS-IS MODEL Business process is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers which is usually visualized with a flowchart or process matrix. As part of the analysis of the supply chain operations in the company an AS-IS Model which was derived is depicted in the flowchart diagram in the appendix section of this report. *Refer Appendix. A AS-IS Model ii. OUTCOMES FROM THE ANALYSIS OF THE AS-IS MODEL  Lack of communication  Lack of planning  Lack of visibility  Lack of integration  Lack of coordination  Lack of transparency  Lack of information sharing  Lack of structured roles and responsibilities  Lack of Performance Measurement Systems  Lack of control and monitoring  Lack of the ability to see supply chain as a whole  Lack of proper utilization of available supply chain software modules  Complex and challenging supply chain iii. OPPORTUNITIES FOR SUPPLY CHAIN IMPROVEMENT  Manufacturing processes  Warehousing operation  Packaging and delivery  Material inspection/receiving
  50. 50. 43  Inbound and outbound transportation  Reverse logistics (returns)  Inventory management and control  Vendor management program  Customer order processing  Invoicing, auditing and other accounting activities  Collaboration procedures with partners  Employee training and deployment  Labour scheduling  Use of teams and empowerment of employees  Automation of processes  Use of software for facilitating all the above IV.3 TO BE MODEL i. FOUNDATION Before proposing a model it will be wise to have an understanding of the process models for management of supply chains. It must be understood that all processes have developmental stages or life cycles. These can be defined, measured and controlled over time. Lockamy and McCormack, 2004; Poirier and Quinn, 2004; McCormack et al., 2008 point out that a higher level of maturity in any business process will result in:  Accurate forecast of goals, costs, performance  Effectiveness to achieve and improve the goals, costs and performance  Better control of results The maturity model has been shown to be very similar to management approach concepts like the Business Process Reengineering (BPR) (Chan and Qi, 2003; Gunasekaran et al., 2001).
  51. 51. 44 ii. MATURITY MODEL Companies use the following main maturity models to analyse their supply chain processes:  SCOR (explained in the earlier in this section)  CSC framework  Business process orientation maturity model The CSC framework was developed by Computer Sciences Corporation (CSC) and tested for the first time in 2003.  First level – company orders development of its functional process by integrating the functional areas in the company and with each company  Second level – company focuses on activities and effectiveness of physical distribution  Third level – company changes or reshapes its inter-organizational processes and starts to develop networks with few carefully selected allies  Fourth level – company begins collaborative initiatives  Fifth level – company completes joining between agents throughout the supply chain Companies which that reach greater levels of organizational performance and have a better work environment have guidance for their business processes based on more cooperation and less conflicts (Lockamy and McCormack 2004). The business process orientation maturity model uses SCOR to identify maturity of processes (Lockamy and McCormack 2004, SCC, 2003).  Ad hoc (first level) – is characterized by poorly defined and bad structured practices. Process measures are not applied, performance is unpredictable, costs are high, cross-functional cooperation and customer satisfaction is low.  Defined (second level) – the basic processes are defined and documented.
  52. 52. 45  Linked (third level) – the organizational structures become more horizontal by creating authorities to overlook the different functional units. Supply chain managers and clients/ partners work as a team with the effort to continuous improvement and better performance improvement.  Integrated (fourth level) – organizational structures and activities are based on supply chain management principles. Performance measurements are used based on collaboration. Good team spirit, reduced costs and customer satisfaction are the results.  Extended (fifth level) – multi-organizational supply chain management teams appear. The support base of the extended supply chain is built by trust and auto- dependence. Investments and the return on investments in system’s improvements are shared. Ideally a statistical analysis to study the relationship between variables and discussion of the business process/ model is a prerequisite for making adjustments or changes to the existing model. A model that has emerged from such analysis and discussion is suggested for the company to have a clear understanding of where it stands. FIGURE 4 - SCPM3 (SOURCE: RESEARCH DATA)
  53. 53. 46 Level 1 (Foundation) - By considering restrictions of capacity and customer alignment the critical business partners are identified and order management best practices are implemented. Level 2 (Structure) – Implementation of control items in demand management processes, production planning, scheduling and for distribution network management. Level 3 (Vision) - Establishing process owners who in turn are responsible for its management and performance results. Level 4 (Integration) – The processes of suppliers and customers integrate with organizational processes in a collaborative platform Level 5 (Dynamics) – Continuously improving its processes by considering its key performance indicators and reacting in a synchronized and fast way to the changes in the competitive environment the chain behaves dynamically. Based on all the above, the following steps may be used as a roadmap for process improvement to optimize and maximize the return on investment in supply chain management.  Discovery stage – defines the scope of what needs to be evaluated and analysed  Knowledge stage – contextualizes the results obtained from discovery stage and make recommendations for improvement  Reuse stage – planning and implementing the recommendations from knowledge stage and preparing to restart the discovery – knowledge – reuse stages Based on the above model the company should identify where it stands as of now and where and how far it has to reach in order to achieve optimum results. The following figure (5,6,7,8,9) give an understanding of the high end process and low end process which may be followed and adapted by the company for moving toward having a responsive and agile supply chain system.
  57. 57. 50 FIGURE 9 – POSSIBLE VARIATION POINTS Refer to Appendix. B for Best Practice Measures
  58. 58. 51 DISCUSSION The findings from the case study and literature suggest that executives, managers and supply chains are under extreme stress as it is becoming more difficult to respond to the challenges with the traditional supply chain strategies and designs. The challenges are in terms of cost suppression, globalization, visibility, customer closeness and risks. New designs and strategies are getting outdated even before executives can implement them and hence the area of cost containment or suppression has become chaotic. Supply chains that are flexible and agile can respond quickly to changing market conditions and are seen as a remedy for cost instability. Despite visibility and collaboration being the top challenges in supply chain management it is not getting much attention in terms of programs and activities. Executives and managers are emphasizing on continuous process improvement, strategy alignment and cost reduction. In contrast, executives of top supply chains are more focused on improving visibility and collaboration of supply chains. Such as collaborative planning with suppliers, customer vendor managed inventory, collaborative planning forecasting and replenishment (CPFR) programs with customers, continuous replenishment planning and shared real time data. Most companies do not know that risks and performance should be managed together. Executives mention the lack of standardized processes, insufficient data and inadequate technologies as the core difficulties that prevent effective risk management. For effective risk management there should be process controls in operations and logistics, compliance programs with suppliers and providers, risk management in supply chain planning and event management to monitor disruptions. Most of the companies struggle to correctly detect customer needs but some of them design products with their suppliers and customers. Only few companies even with all the demand-driven hype in supply chain planning include customer input, while most of them invite supplier participation. Companies don’t bother and often ignore customer interactions because it is costly and time consuming. But as the burdens of becoming more profitable increases, supply chains
  59. 59. 52 can’t afford to carry excess inventory, lost sales and missed innovation opportunities caused by lack of customer collaboration. It is found that top supply chains utilize opportunities to synchronize plans internally and with external supply chain partners; more so with their customers when compared to the less effective peers. Many companies around the world are encountering problems with global sourcing, long lead times and poor quality. But, of course, the financial advantages of globalization of markets and operations overshadow these negatives. The increased profits are not necessarily tied to lower costs but it is definitely tied to sales increases. In many cases companies are experiencing increased costs as a result of increased globalization. It can be said that globalization has contributed to revenue growth and not efficiency. Top supply chains report overall performance (short lead time, reduced costs, high service levels, and excellent quality), increased sales and improved margins. It is very important for top executives to understand that it is not enough to build supply chains that are demand driven, transparent and efficient but they must be smart. The responsibility lies on the shoulders of executives who should become strategic thinkers, collaborators and orchestrators and optimize complex networks of global capabilities. SUGGESTION The Company should:  Have a true understanding of current supply chain performance and the actual needs and wants of the customers.  Have an understanding of what the customer is willing to pay.  Have a supply chain strategy which runs the technology.  Align supply chain strategy with company strategy.  Align incentives across supply chain functions.  Align incentives with external supply chain parties.  Support people with the right data.  Respond to actual demand and not rely on forecasts.
  60. 60. 53  Identify the right process, strategy, procedures and knowledge for smooth functioning of the supply chain.  Align internal business performance with external customer demand requirements.  Have reliable and accurate forecasting.  Have better understanding of new product demand.  Have a market-responsive process for new products or unpredictable demands.  Have better inventory and production planning.  Bear in mind that with a very large product range, uncertainty in supply chain will have to be accepted.  Ensure that internal and external parts of the supply chain should have access to consistent data.  Empower people to make decisions quickly.  Set up a committee for supply chain disruption risk management process.  Identify key processes likely to be affected by disruptions, e.g. new product development, operations, manufacturing etc.  Identify key assets likely to be affected by disruptions, e.g. inventory, property, brand image etc.  Provide data to supply partners on changes in supply and demand.  Track economic changes, political changes, technological changes, legal changes, changes in government regulations etc.  Find more reliable vendors in different parts of the world.  Have a clearly defined need, based on supply chain strategy prior to application of any new supply chain technology.  Have clear expectations about what the supply chain technology can or cannot do.  Understand the need of human intervention to work. E.g. how to feed good data into the system, how and when to update information?  Be aware of the existing layers of supply chain systems which may sometimes be connected and sometimes not connected.  Set up the supply chain system right so that the people do not end up disbelieving the machine.
  61. 61. 54  Understand that it is very hard to calculate how much a new supply chain technology can help.  Integrate order taking with product inventory levels  Make changes so that low inventory levels must trigger automatic ordering  Make changes so that order to manufacturing must generate a list of the needed resources and their availability  See to it that changes in order must be transmitted automatically to suppliers and their suppliers  Have tracking systems which is made available to customers so that they can check the status of their orders  Have internal controls built in to manual/administrative process steps and/or computer system procedures  Clearly document, enforce and regularly exercise the manual and administrative controls  Align with suppliers and customers and focus on processes  Have efficient and effective lines of communication and interfaces between involved parties  Use process flowcharts and process maps (software)  Study both internal and external process of the supply chains  Measure and compare the performance of existing supply chains  Benchmark the performance of supply chains  Do business process reengineering before a solution software is attempted and implemented  Develop and maintain relationships with business partners and key employers in these organizations  Provide visual charts to employees  Provide real time access to inventory levels to sales representatives so that they can set appropriate delivery expectations  Provide online access to order status to customer support representative to answer customer order queries
  62. 62. 55 CONCLUSION For a supply chain to be efficient and responsive it should focus on cost reduction that is aligned with speed of order fulfilment, service level and customer satisfaction. Unfortunately companies are not able to achieve efficiency and responsive simultaneously. Supply chain efficiency and responsiveness can be facilitated by use of supply chain partners in design, development, planning, forecasting, replenishment, identifying bottlenecks, developing corrective actions, identifying risks, improving visibility and relations with customers and suppliers. The biggest challenge is to identify the right supply chain strategy which varies for different products. The next challenge is to align the corporate strategy with the supply chain strategy. Another major and obvious challenge is that executives are grappling to have a better understanding of the key drivers for their supply chain operations strategies. Supply chain optimization is the current way of improving efficiency, responsiveness and profitability. This requires top management commitment and sense of mission. Well informed and qualified professionals and consultants are needed to maintain and rework the methods for facing the ever changing challenges. Since uncertainty and volatility are here to stay it is recommended to have a risk based efficient and responsive supply chain for companies to have a sustainable long lasting competitive advantage. A recommendation to replace or modify the present process with a better one should be made with proper justification. The process must include systematic periodical analysis by reason and present suitable information report that pinpoints the major reasons and trends for the top management to take corrective actions to control exceptions and keep them within acceptable limits. The main limitations of this study was in terms of data collection as all departments were quite apprehensive in sharing information and difficulty to bring all departments together to focus on processes. The next limitation is that departments are not aware of loss of revenue with shortcomings in the process they follow. Last but not the least is to identify the reasons for delay in order fulfilment.
  63. 63. 56 APPENDIX A FOR AS-IS MODEL NAFFCO_v1.1.pdf
  64. 64. 57 APPENDIX B FOR BEST PRACTICE MEASURES Construct name Question Strategy team Does the team have a supply chain strategy? Does the team measure the impact of strategy on supply chain performance? Does the team use a supply chain performance measurement system? Who is involved in selection of supply chain team members? Does the team consider customer satisfaction or product profitability or both? Are customer priorities defined by the team? Has the team defined product priorities? Does the team participate in customer and supplier relationships? Process governance Is a process owner identified for supply chain planning? Is there a process owner for supply chain planning? Is there a process owner for "promise delivery"? Is there a process owner for “demand management”? Is there a process owner for procurement management? Is there a process owner for network management? Is there a process owner for order management? Is there a process owner for production management? Is there a process owner for distribution management? Is there a process owner for transportation management? Is there a process owner for quality management? Foundation building Do you have a documented order commitment process? Do you make order promises beyond your current inventory level? Do you make changes in response to screams of urgency? Do you make deliveries by bypassing the normal process? Do you have documented production management process? Do you have documented distribution management process? Do you have documented procurement management process? Do you have documented demand management process? Do you have documented transportation management process? Do you have documented supply chain process? Do you have documented network management process? Is the process supported and complemented by the information system? Are all variability well agreed and standard? Do you have strategic suppliers for all products and services? Demand Does your current IT system support demand management?
  65. 65. 58 management Do you analyze the demand variability for each of your products? Is historical data used in developing the forecast? Are you using mathematical models for demand forecasting? Are forecasts done on a regular basis? Do you do a forecast for each and every product? Do you use customer information? How often is the forecast updated? Do you measure the forecast accuracy? Do you use the forecast to make plans and commitments? Procurement team Is there a procurement team? Does the team work closely with sales, marketing, manufacturing, quality, designing? Does the team meet on a regular basis? Do you develop a plan by collaborating with your suppliers? Do you measure supplier performance? Do you share information with your suppliers about planning and scheduling? Do key suppliers have their workers on your site? Production management Do you adhere to production plans and scheduling? Do you measure adherence to plan? Do you have plans at item level? Do you have integrated and coordinated planning processes across divisions? What methods do you use for planning/ Do you use constraint based planning methods? Is shop floor scheduling and overall scheduling process integrated? Do your current IT systems support the process? Order management Do you have the capability to respond to unintended orders? Do your current IT systems support the order promise process? Do you know the stock out situations? Do you measure the out of stock situations? Can you rapidly re-plan to respond to changes? Do you measure customer requests to actual deliveries? Do you measure customer satisfaction based on on-time deliveries? Can you commit a firm quantity and delivery date for a given customer order? Are your commitments to the customer credible? Transportation and distribution management Does your current IT support transportation and distribution management? Are all the processes integrated with supply chain processes? Do you have transportation and distribution measures in place?
  66. 66. 59 Do you recognize and reward the process partners? Operations planning team Do you have a operations planning team? Are the supply chain functions and support functions represented in this team? Is there a documented operations planning process? Do you make changes and adjustments as a result of team meetings? Responsiveness Are finished goods inventory able to meet short-term customer demands? In the planning process Is supplier lead times given a major consideration? Do you track the completed customer orders which are delivered on time? Collaborative integrated practices Do the marketing and sales, production, procurement, planning, transportation and distribution team up in the order commitment process? Is the order commitment process aligned with the supply chain decision processes? Do you "make to order"? Do you include your customer's planning and scheduling information in your planning and scheduling? Do you have formal documented approval process for changes? Do you develop a forecast for each customer?
  67. 67. 60 REFERENCES Chopra, Sunil, D.V, Kalra, Peter, Meindl. (2007) Supply Chain Management: Strategy, Planning, and Operation. Third Edition. New Delhi: Pearson Education. ISBN: 81-317- 0401-7. Upendra, Kachru. (2009) Exploring the Supply Chain: Theory and Practice. First Edition. New Delhi: Excel Books. ISBN: 978-81-7446-734-8. Dilek, Onkal. (2011) Supply Chain Management: Pathways for Research and Practice. Ed. InTech. ISBN: 978-953-307-294-4. PwC. (2013) Next-Generation Supply Chains: Efficient, Fast, and Tailored. Global Supply Chain Survey. Deloitte. (2011) Supply Chain Resilience: A Risk Intelligent Approach to Managing Global Supply Chains. Business Continuity Institute. The Boston Consulting Group Knowledge@ Wharton. (2006) Creating the Optimal Supply Chain. Wharton University of Pennsylvania. (Special Report). Martin, Poiger. (2010) Improving Performance of Supply Chain Processes by Reducing Variability. Vienna University of Economics and Business. (Dissertation). Dennis, Minnich, Frank, H, Maier. (2007) Supply Chain Responsiveness and Efficiency: Complementing or Contradicting each other? International University in Germany. Marcos, Paulo, Valadares, de, Oliveria, Marcelo, Bconzo, Ladeira, Kevin, P, McCormack. (2011) The Supply Chain Process Management Maturity Model: SCPM3. Universidade Federal do Espirito Santo. Universidade Federal de Minas Gerais. DRK Research. Brazil. USA. Shekhar, B, Raju, Devi, P, Umamaheswarin, (2007) Management Dynamics. International Journal of Business Research. International Academy of Business and Economics. ISSN: 1555-1296.