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Supply Chain Infrastructure


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Supply Chain Infrastructure - Prospects & Challenges in Recession hit Economy (A Glance)

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Supply Chain Infrastructure

  2. 2. Introduction Recession & it’s Impact Role of Supply Chain Infrastructure Components of Supply Chain Infrastructure SystemProspects and Challenges of Supply Chain Infrastructure Future Prospects & Challenges ahead Supply Chain Network Infrastructure Planning 2
  3. 3. Introduction India has re-emerged as one of the fastest growingeconomies in the world. Failing to improve thecountry’s infrastructure will slow down India’s growthprocess. The demand for infrastructure investmentduring the 11th Five Year Plan (2007-2011) has beenestimated to be US$ 492.5 billion.As per the Andersen Consulting Report on SupplyChain Infrastructure the supply chain as a concept anda reality is moving far beyond the confines of anindividual organization. It has become a dynamicprocess that involves the simultaneous acquisition andcontinuous reevaluation of partners, technologies, andorganizational structures. 3
  4. 4. What is recession ?In the United States, the Business Cycle Dating Committee of the NationalBureau of Economic Research (NBER) is generally seen as the authority fordating US recessions. The NBER defines an economic recession as: "asignificant decline in economic activity spread across the economy, lastingmore than a few months, normally visible in real GDP, real income,employment, industrial production and wholesale-retail sales."A recession has many attributes that can occur simultaneously andincludes declines in component measures of economic activity (GDP) suchas consumption, investment, governments’ spending and net exportactivity.Economist Richard C. Koo (2009) wrote that under ideal conditions, acountrys economy should have the household sector as net savers & thecorporate sector as net borrowers, with the government budget nearlybalanced & net exports near zero. 4
  5. 5. Recession & it’s Impact Employment Companies Competitors Diminishing(Heavy Knock out) (Barely managed to (Weaker ones Resources (Financial survive) perished) meltdown) During recession, many macroeconomic indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall, while bankruptcies and the unemployment rate rise. 5
  6. 6. Infrastructure Development in India Indian government’s first priority is rising to the challenge of maintaining and managing high growth through investment in infrastructure sector. Physical infrastructure covering transportation, power and communication through its backward and forward linkages facilitates growth; social infrastructure including water supply, sanitation, sewage disposal, education and health, which are in the nature of primary services, has a direct impact on the quality of life.With the current GDP growth of 8%, in which there is contributionof nearly 57% from services and 16% from manufacturingsector there is a need for proper alignment of resources. To sustainthis growth India needs to develop sound infrastructure so that theright input of skilled, qualified and socially contented labor; visibleand reliable supply chains; prompt and accurate information fordecision making; efficient process and updated technology can begiven to the operations of manufacturing and services. 6
  7. 7. Role of Supply Chain Infrastructure There has been a steady increase in the urban population on account of rapid industrialization, natural growth and migration from rural areas. This has prompted the working out of alternative ways of meeting the increasing transport demand given the constraints of land and capital, and the need to control energy consumption, pollution and accidents.Every Supply Chain Management (SCM) has three major aspectsnamely; Quality, Cost and Time i.e to produce and deliver productand services at the right time with the right quality and right cost.Infrastructure plays a major role in order to accomplish the SCMobjectives. 7
  8. 8. Infrastructural Factors on Operations of an Organization (Source :,1) 8
  9. 9. The figure shown depicts the influence of various infrastructuralfactors on operations of an organization or a project. The output ofthe well managed operations creates better services and productswhich are the assets of any country.Infrastructural development in a country helps to run theoperations of any company efficiently and effectively. Since cost isa reality and price is a possibility and due to high competitionprice is decided by the market forces, the controlling of cost isvery imperative and is within the scope of a organizations’ SCMpractices. Customer demands for better services, growing dominance of technology, the view of the individual enterprise as just one component of the total value system, the increase in interconnectedness and globalization of business and economics and the widening range of stakeholders to be satisfied are all factors contributing to the substantial supply chain challenges. 9
  10. 10. Components of Supply Chain Infrastructure SystemCouncil of Logistics Management (1991) defined that logistics is ‘part of the supply chainprocess that plans, implements and controls the efficient, effective forward and reverse flowand storage of goods, services and related information between the point of origin and thepoint of consumption in order to meet customers’ requirements’.Johnson and Wood’s definition (cited in Tilanus, (1997) uses ‘five important key terms’,which are logistics, inbound logistics, materials management, physical distribution, andsupply-chain management. Information systems include modeling and management of decision making, and more important issues are tracking and tracing. It provides essential data and consultation in each step of the interaction among supply chain partners and processes. Supply chain infrastructure basically comprises human resources, financial resources, packaging materials, warehouses, transport and communications. 10
  11. 11. Role of Transportation in Supply Chain InfrastructureMobility is one of the most fundamental and important characteristics of economic activity asit satisfies the basic need of going from one location to the other, a need shared bypassengers, freight and information.Jean-Paul Rodrigue (1998) defined theeconomic importance of transportation. Hehighlighted that the general standpoint and theeconomic impacts of transportation can be,•Direct impacts related to accessibility changewhere transport enables larger markets andenables to save time and costs.•Indirect impacts related to the economicmultiplier effects where the price ofcommodities, goods or services drop and/ortheir variety increases. 11
  12. 12. The supply chain transport infrastructure can be evaluated onfollowing parameters such as:•Networks. Setting of routes enabling new or existing interactionsbetween economic entities.•Performance. Improvements in cost and time attributes forexisting passenger and freight movements.•Reliability. Improvement in the time performance, notably interms of punctuality, as well as reduced loss or damage.•Market size. Access to a wider market base where economies ofscale in production, distribution and consumption can be improved.•Productivity. Increases in productivity from the access to a largerand more diverse base of inputs (raw materials, parts, energy orlabor) and broader markets for diverse outputs (intermediate andfinished goods). 12
  13. 13. The major impacts of transport on economic processes can be categorized asfollows:Geographic specialization: Improvements in transportation andcommunication favor a process of geographical specialization that increasesproductivity and spatial interactions.Large scale production: An efficient transport system offering cost, time andreliability advantages permits goods to be transported over longer distances.This facilitates mass production through economies of scale because largermarkets can be accessed.Increased competition: When transport is efficient, the potential market for agiven product (or service) increases and so does competition. A wider array ofgoods and services becomes available to consumers through competitionwhich tends to reduce costs and promote quality and innovation.Increased land value: Land which is adjacent or serviced by good transportservices generally has greater value due to the utility it confers to manyactivities. In some cases, the opposite can be true if related to residentialactivities. 13
  14. 14. Role of Warehousing in Supply Chain Infrastructure There is no as such clear cut formula to estimate or forecast the demand at marketplace precisely. When a firm needs an inventory, it must be stored in such a way that the physical attributes of the inventory items can be preserved as well as protected. Thus, the inventory produces the need for warehousing. The functions of warehousing include stockpiling, stock mixing, trans-loading and contingency protection.Warehousing can be viewed as a physical system, involving facilityspace, labor and equipment, where inbound products are putaway, stored and protected until the outbound product shipment relatedprocesses occur. A warehouse management system is a key part ofthe supply chain and primarily aims to control the movement andstorage of materials within a warehouse . 14
  15. 15. Prospects and Challenges of Supply Chain InfrastructureAccording to Obiora Madu (2011) infrastructure is defined as part of a structure, materialor economic base of a society or an organization. Therefore, infrastructure can beseen as the basic structure that fosters the good performance of cities’, states’ orcountries’ essential services.In this sense, for a country to have a good supply chain infrastructure system in thedifferent modes of transportation, constant investments from both public and privatesectors are needed. Organizations, especially in a competitive and globalised world, require infrastructure compatible with their needs and demands, in order to transmit their products and services to different producers and demand centres in different parts of the globe. 15
  16. 16. FutureChallenges Prospects 16
  17. 17. The major opportunities are highlighted below by Obiora Madu (2011).•Many big Indian corporate such as Tata and Reliance Industries have been attractedby the potential of this sector and have established logistics divisions. They startedproviding in-house logistics services, and soon sensing the growth of the market, havestarted providing services to other corporate as well.•Large express cargo and courier companies such as Transport Corporation of India(TCI) and Blue Dart have also started logistics operations. These companies enjoy theadvantage of already having a large asset base and an all-India distribution network.•Indian shippers are gradually becoming more aware of the benefits of logisticsoutsourcing. They are now realizing that customer service and delivery performance areequally important as cost to remain competitive in this global economy.•The Indian economy is growing at over 9% for the last couple of years (compared tothe world GDP growth rate of 3%), which implies more outputs and more demand forspecialized logistics services. 17
  18. 18. Supply Chain Network Infrastructure PlanningAlan Kosansky and Ted Schaefer(2011) suggested 10 Guidelines for Supply Chain NetworkInfrastructure Planning. •Network structure, which determines 75%- 80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures. •Optimize supply chain infrastructure to realize maximal cost savings. •Understand the changes that can be impacted. •Consider technological analysis to make the supply chain decisions. •Modern infrastructure planning requires a collaborative effort. •The planning process needs to include many different scenarios to ensure a robust solution. •Consider hybrid solutions to ensure low-cost, high level customer service. •Models and analysis mean nothing without implementation. •Optimized supply chains minimize inefficiencies. •The answer is in the data. 18
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  20. 20. References•Argyres, N.S. (1999). The Impact of Information Technology on Coordination: Evidence from the B-2“Stealth” Bomber, Organization Science, 10(2), 162-180.•De, P. (2004). Transport Cooperation in BIMST-EC: Issues and Way Forward, Research and InformationSystem for Developing Countries (RIS), New Delhi.•Gallaher Michael P., and Alan C. O’Connor (2002). Economic Impact Assessment of the InternationalStandard for the Exchange of Product Model Data (STEP) in Transportation Equipment Industries. NISTPlanning Report 02-5. Gaithersburg, MD:NIST.•Koo, Richard (2009). The Holy Grail of Macroeconomics-Lessons from Japans Great Recession, JohnWiley & Sons (Asia) Pte. Ltd.•Kosansky, A. and Schaefer, T. (2011). Guidelines for Supply Chain Network Infrastructure Planning.USA, Industrial week.•Lee, H. I. and S. Whang (2000). Information Sharing in a Supply Chain. International Journal ofTechnology Management , 373-387.•Planning Commission, (2007). Projections of Investment in Infrastructure during the EleventhPlan, Government of India, New Delhi. 16. 20
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