FROM AUSTERE TO AGILE

SUPPLY CHAINS
With efficiency and quality improved in India,
manufacturers now must collaborate with others for better delivery
BY M. BALAJI AND V. VEL MURUGAN
40 Industrial Engineer
September 2013 41
Worldwide, managing supply
chains has become a major component of
competitive strategy to enhance organiza-
tional productivity and profitability. The
supply chain of a manufacturing enterprise
is a global network of suppliers, facto-
ries, warehouses, distribution centers and
retailers through which raw materials are
acquired, transformed and delivered to
customers.
Supply chain agility has continued to
gain importance in modern day manu-
facturing practices because more agile
enterprises are capable of adapting to
rapidly changing market requirements. So
organizations constantly work on trans-
forming their present austere supply chains
into agile entities to ensure overall supply
chain profitability.
This transformation is in its infancy in
India, where austere supply chains some-
times are characterized by deliveries into
areas where there is a poor or nonexistent
network of roads. The nation also faces
a number of problems associated with
developing countries, such as supply chain
fragmentation, infrastructure woes and
a lack of trained and specialized human
resources. Often, supply chains not only
are primitive, they are rigid as well. Despite
this, the countrys rapid industrialization
is driving the need for increasingly sophis-
ticated supply chains that can meet the
requirements of the 21st century.
But such transformations need a proper
understanding of the variables that affect
supply chain agility and the techniques
that can be used to enhance it. Interpre-
tive structural modeling (ISM), structural
self-interaction matrices (SSIM), graph
theoretic approach (GTA), analytic hier-
archy process (AHP), total agile design
systems (TADS), developing digital prod-
uct catalogues (DPCs) and radio-frequency
identification (RFID) tracking could be
the lifeboats that traditional enterprises in
India use to ensure their survival.
The success of any integrated supply
chain model depends on its readiness to
react effectively and quickly to supply chain
disruptions and changes, thereby adding
unique flexibility and quality to an enter-
prises current supply chain.
Origins of
supply chain management
In the second half of the 20th century,
companies aimed to engage in every facet of
the supply chain, from buying raw materials
to manufacturing and then distributing the
products to stockers, dealers and retailers.
The aim was to produce more, reduce costs,
sell more and increase profits under one
roof. Creating partnerships with upstream
or downstream players was not considered.
As a result, keeping large inventories on the
shop floor to sustain mass production was
considered necessary. However, as compe-
tition grew in the 1970s, the need to reduce
costs came to the forefront. Soon, there
were cumulative efforts to reduce inven-
tory to cut costs and offer lower prices than
competitors.
Material requirement planning (MRP)
and manufacturing resource planning
(MRP II) systems were introduced to
reduce inventory holdings. The need for
effective materials management was duly
recognized. The advancement in informa-
tion technology helped companies apply
complicated software to track and manage
inventories through local area networks
and wide area networks. Concepts such
as just-in-time (JIT) and total quality
management (TQM) enhanced effective
material processing on the shop floor.
The globalization and liberalization
trends that can be traced to the 1980s
sparked dramatic changes in supply chain
management. Low costs, high quality
products and customer delight became the
buzzwords for the manufacturing arena.
Increased dependence on JIT and TQM
methodologies created the vision for stra-
tegic partnerships. Developments in IT
further enhanced the operational boundar-
ies of firms. The first academic mention of
the term supply chain management came
from a journal paper published in 1982 in
the United States.
Opportunities for
supply chain management
Market globalization and liberalization
present a great opportunity for Indian
manufacturers to reach out to global
markets that offer a high potential for
profits. This effort demands re-examining
the ways inventory and logistics are being
dealt with along the countrys existing
supply chains. Supply chains need to find
a balance between, on one hand, the poten-
tial of the supplier, and, on the other hand,
the demands of the customer.
Rapid industrialization in India has
brought change not only to the front end
of an enterprises operations. These days,
the entire network of activities leading
to a successful transactions culmination
has undergone significant development.
In the course of this retail evolution in
India, supply chains have made significant
strides. After all, the supply chain forms a
major part of the sustenance of any manu-
facturing venture.
For the manufacturer to flourish, it
should have an efficient and well-estab-
lished supply chain. An enterprises efficient
supply chain can help out in a range of
areas, strengthening its links in sourc-
ing, supplying, distributing, transporting,
packaging and labeling.
Hence Indian companies will have to
follow the rest of the world, where instead
of being part of a networks operations, the
enterprises supply chain will have to be a
source of competitive advantage to rescue
companies on the verge of annihilation.
If we look at the global scenario, we
already have the prime example of a supply
chain behemoth Wal-Mart. Wal-Mart
is reputed to have one of the worlds best
and most extensive supply chains, which
enables it to tout its strategy of everyday
42 Industrial Engineer
from austere to agile supply chains
low prices. Its counterparts in India have yet
to reach that stage. To get there, an amalga-
mation of huge investments, government
policies, third-party intermediation, and
fast-changing consumer preferences will
characterize this back-end revolution.
The key opportunities for investment in
a supply chain lie in the areas of sourcing,
distribution centers (warehouse, cold stor-
age), transportation networks, inventory
(both store level and warehouse), supply
chain information systems such as ware-
house management systems, planning,
forecasting and inventory management.
Instead of keeping everything under one
roof, different players have chosen vari-
ous combinations of activities that they
perform while outsourcing other tasks to
upstream or downstream entities, includ-
ing third-party logistics companies, or
3PLs.
An Indian retail chain like Subhiksha
has outsourced most of its back-end work,
but some, like Reliance, are investing heav-
ily in the supply chain network to seek
backward integration of their businesses.
Yet others, like Pantaloons, are excessively
pushing their in-house brands in their
stores. To a certain degree, such enterprises
have successfully included manufacturing
in their supply chain.
Challenges
According to the late British Prime Minis-
ter Winston Churchill, A pessimist sees
a difficulty in every opportunity and an
optimist sees an opportunity in every diffi-
culty. The rigid supply chains of today will
have to be optimistic to avail themselves
of the futures opportunities if they are to
overcome the many challenges in trans-
forming austere supply chains in India into
strong and agile delivery channels. Here are
the major challenges:
Lack of skilled human resources.
While the destiny of manufacturing is
in efficient supply chains, in India such
advanced supply chains will take more time
to develop because of the countrys general
lack of supply chain professionals. Even
among them, the levels of process expertise
and best practice skills are low. The only
consolation is that these factors may be a
comma but not a full stop. However,
with the growth of organized markets along
with the increasing number of professional
courses offered and research undertaken
about supply chain management in the
country, numbers of supply chain profes-
sionals gradually are focusing on scientific
methods to deal with the critical issues
faced by supply chains in India.
Infrastructure woes. The infrastruc-
ture in India is not as well-developed as in
other countries. It should be an accepted
fact that many parts of India still are not
connected by roads, leaving goods and
products to be delivered through traditional
transportation such as tractors or bullock
carts. Hence, any supply chain strategy for
rural and semi-urban sectors would need
to take all these indigenous Indian factors
into account.
Use of 3PLs. The gap between expecta-
tions and the actual level of services 3PLs
can provide, combined with the prices
charged by the 3PLs, are primary reasons
why more companies are not looking to
outsource their logistics. Frankly, in India,
the current service levels of 3PLs leave a lot
to be desired. Hence, as of now, only mature
companies in this field have a true chance
at success.
Supply base. Due to the fragmented
nature of supply chains in India, the players
have to deal with a wide number of other
entities. This results in lower margins per
level for the same amount of goods and
transactions. Furthermore, additional levels
in the supply chain also result in increased
overall waste for the supply chain. This also
increases the number of points at which
waste will happen.
Large number of intermediaries.
This fragmented supply base results in a
large number of intermediaries, which arti-
ficially increases product costs, resulting in
decreased margins at the retail points of
sale. In simpler words, enjoying a lions
share of the profits becomes more difficult
as there are more shares to divide up from a
defined profit level.
Counterfactual forecasts. Indian
companies continually face big problems
when it comes to forecasting inventory
requirements. Due to the fact that many
organizations have not properly imple-
mented the necessary IT systems, historical
data often is not available at the appropri-
ate time. In certain cases where such data
is available, organizations do not possess
enough technical competency to analyze
this data and derive meaningful insights.
The results are easily visualized in an
increasing number of stock-outs, increased
markdowns, low inventory turns and high
pilferage rates.
Green manufacturing in its infancy.
With ambitious protocols announced
in the drive to save the environment for
the future, there also is the need to make
supply chains greener while increasing
their agility. In India, green manufacturing
itself is in its infancy. This leads to a debate
about how to create a flexible and adaptable
supply chain that can react quickly and with
minimum effort as the regulatory land-
scape changes. Go back to supply chain
leviathan Wal-Mart. The worlds largest
retailer announced that it would cut some
20 million metric tons of greenhouse gas
emissions from its supply chain by the end
of 2015. This is the equivalent of removing
more than 3.8 million cars from the road for
a year. Supply chains in India have miles to
go before they can dream of such savings.
Targeting agility
Although the country and its enterprises
face a difficult transformation from auster-
ity to agility in supply chain management,
a number of methodologies are available to
help. Manufacturers worldwide have used
these effective methods to increase prof-
September 2013 43
itability, add agility and strength to their
supply chains, and , in some places, literally
save their enterprises skins.
Interpretive structural modeling.
ISM provides a fundamental understand-
ing of complex situations and puts together
a course of action for solving problems. Its
basic idea is to use experts practical experi-
ence and knowledge to break a complicated
system into several subsystems (supply
chain enablers) and construct a multilevel
structural model. ISM also enables individ-
uals or groups to construct a directed graph
of the complex relationships between the
various supply chain enablers involved in a
complex situation.
Structural self-interaction matrix.
SSIM methodology suggests the use of
expert opinions based on various manage-
ment techniques such as brainstorming
and nominal group technique in develop-
ing the contextual relationship among
a systems variables. In this research,
experts from industry and academia can
be consulted to identify the nature of the
contextual relationship between variables
that affect agility. In order to analyze the
relationship among the agility variables,
a contextual relationship of lead to type
shall be chosen. Four symbols are used
to denote the direction of relationship
between the variables (i and j):
V = Variable i will help achieve variable j.
A = Variable j will be achieved
by variable i.
X = Variable i and j will help achieve
each other.
O = Variables i and j are unrelated.
Based on the contextual relationships,
the SSIM is developed so that the variables
Improving supply chain efficiency in India not only could save the country billions of dollars, it literally could save
lives, according to various reports.
A recent study from the Confederation of Indian Industry (CII) and Amarthi Consulting concluded that India
loses $65 billion a year from inefficient supply chain systems, reported the website Moneylife.com. Supply chain
costs the retail sector between 12 percent and 13 percent of gross domestic product, which compares with a 7
percent to 8 percent rate in developed countries, and 95 percent of the retail sector is fragmented and unorganized.
But a lack of adequate warehousing, cold storage and food distribution channels costs the country 12 million tons
of fruit and 21 million tons of vegetables every year, according to the U.N. Environment Programme. The Inter
Press Service News Agency reported that the Food Corporation of India admitted to losing 79 million tons, or 9
percent, of the grain it procured from 2009 to 2013.
Such losses are tragic in a country that has 200 million food-insecure people, according to the International
Food Policy Research Institutes 2011 Global Hunger Index. India Real Time, a blog of The Wall Street Journal,
did a six-part series on starvation in India last year. The report included numerous tragic cases of starvation and
malnutrition.
The articles stated that according to government estimates, 35.6 percent of Indian women and 34.2 percent of
Indian men have body mass indexes less than the normal 18.5.
SUPPLY CHAINS SAVE MONEY AND LIVES
44 Industrial Engineer
from austere to agile supply chains
interact in ways that lead to increased levels
of agility in a rigid supply chain.
Graph theoretic approach. GTA
is a logical and systematic approach
using the advanced theory of graphs.
Its applications are well-documented in
the formation of digraphs for depicting
interrelationships between supply chain
enablers. While a digraph can convey the
visual representation of the characteris-
tics and their interdependencies, a matrix
can be developed to convert the digraph
into mathematical form. The permanent
function of such a mathematical model
invariably helps to determine a score called
agility index, which can be used in measur-
ing the agility levels of supply chains.
Analytic hierarchy process. AHP is
a structured technique for organizing and
analyzing complex supply chain decisions
based on mathematics and psychology.
Rather than prescribing a correct deci-
sion, AHP helps decision makers find one
that best suits their goal in a particular
situation given their understanding of the
problem. It provides a comprehensive and
rational framework for structuring supplier
decision problems, for representing and
quantifying supply elements, for relating
those elements to overall organizational
goals and for evaluating alternate solutions.
Total agile design systems. TADS
quantify an industrys supply chain agil-
ity through adapting the technological
advancements. In TADS, varying customer
requirements are given due impetus
and translated to supply requirements
using relevant engineering technologies.
Customer requirements often are traced
using a quality function deployment
tool. Agile design systems are embedded
in the shop floor and through the use of
computer-aided manufacturing, computer-
aided engineering, flexible manufacturing
systems and rapid prototyping.
Digital product catalogue. DPC is
a Web-based system in which the digi-
tal versions of products and components
are uploaded. It enables the customers to
view products and components virtually.
This will prevent the strain of physically
approaching the organization and gath-
ering the product data. It also provides
the details about the profile of the orga-
nization and facilitates the suppliers and
customers in placing online orders. DPC
displays various products, their vari-
ants and their attributes. When potential
customers click on a products features, the
three-dimensional view of that particular
feature is displayed. A DPC system also
helps customers specify their requirements
and promotes product customization.
RFID. RFID has the potential to revo-
lutionize the way business is conducted.
Consisting of three parts (a chip, a reader
and a database), RFID can identify people
and objects automatically by a 100-digit
tag and track them through the supply
chain. As things move through the process,
RFID readers collect information on the
products and match their tag numbers to
a central database, which provides access
to all information regarding the product.
While RFID continues to be widespread
in the supply chain, the November 2008
study, Where RFID Meets ROI: Beyond
Supply Chains, showed that organiza-
tions have realized many other benefits by
incorporating RFID into other business
functions. RFID technology can provide
unprecedented speed, responsiveness and
accuracy in supply chains.
A future of collaboration
Until manufacturers and the nascent
supply chain industry in India properly use
the above methodologies to make supply
chains stronger and more agile, most
supply chains in the country will remain
inefficient. But as consumers in India
advance with the rest of the world, enter-
prises that overlook such opportunities
for efficiency could be dealing a fatal blow
to their existence not only in delivering
goods to people in India, but in participat-
ing in the global economy.
Having spent the previous years
improving manufacturing efficiency and
product quality, manufacturers now need
to improve their collaboration with suppli-
ers, retailers and customers to learn how
to meet the rapid changes in demand that
come with an advanced and globalized
economy. Increasing customer expecta-
tions and demands in terms of speed and
quality will place an increased focus on
customer service in the future. For long-
term manufacturing survival, industries
must transform their supply chains into
world-class enterprises that can respond to
a rapidly changing landscape.

M. Balaji is a senior grade assistant professor in
the Department of Mechanical Engineering at
Kumaraguru College of Technology in Coim-
batore, India. He received his B.E. degree in
mechanical engineering and M.E. degree in
industrial engineering from Bharathiar Univer-
sity in Coimbatore, India. He also has an MBA
from Bharathiar Universitys School of Distance
Education. He is a life member of the Indian Insti-
tution of Industrial Engineering and Institute for
Supply Management. He has 11 years of teaching
and research experience and has published in and
with several international and national journals
and conferences. He is focused on improving the
supply chain agility of Indian companies for his
doctoral program.
V. Vel Murugan is the principal at Sree Sakthi
Engineering College in Coimbatore, India. He
received his B.E. degree from Government College
of Engineering in Salem, India; his M.E. degree
from Annamalai University in Annamalai Nagar,
India; and his Ph.D. in mechanical engineering
from Bharathiar University. He has 22 years
of teaching and research experience and has
supervised 10 Ph.D. scholars. He has published
more than 15 research papers in international
and national journals and presented 50 papers
in international and national conferences. His
research areas include manufacturing and opti-
mization.