The Emerald Research Register for this journal is available at http://www.emeraldinsight.

com/researchregister

The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0960-0035.htm

IJPDLM 33,7

Supply chain management practices in Indian industry

B.S. Sahay and Ramneesh Mohan
Management Development Institute, Gurgaon, India
Keywords Supply chain management, Strategic evaluation, Inventory, Internet, India Abstract Increasing uncertainty of supply networks, globalization of businesses, proliferation of product variety and shortening of product life cycles have forced Indian organizations to look beyond their four walls for collaboration with supply chain partners. With a gross domestic product (GDP) of over US$474.3 biilion, the Indian industry spends 14 percent of its GDP on logistics. Considering this scenario, it is necessary to study the supply chain practices being followed by the Indian industry and to suggest areas for improving the same. This paper is based on a joint survey, covering 156 organizations, carried out by Management Development Institute, Gurgaon and KPMG India. The paper primarily focuses on the status of four major supply chain dimensions. The paper recommends that the Indian industry should align supply chain strategy with business strategy, streamline processes for supply chain integration, form partnerships for minimizing inventory and focus on infrastructure and technology deployment to build a India-specic supply chain.

582
Received September 2001 Revised March 2002, February 2003, June 2003

Introduction Todays businesses have become extremely complex. The interplay of the three Cs, namely, consumers, competition and convergence, has thrown open new challenges for organizations all over the world. Consumers have become highly discerning in their choice of products and services. The pressure of competition has accelerated product changes, supercharged by shortening product and technology development lifecycles. Convergence has shifted the balance of power in favor of the consumers thereby giving way to globalization of businesses and integration of economies. although this may have thrown open a plethora of opportunities for all in the form of variety and choice, it has at the same time added the highest degree of uncertainty and unpredictability to business processes. To combat these risks and challenges, organizations round the globe are re-organizing and streamlining their supply chains. Supply chain complexity: India Worldwide interest in supply chain management has increased steadily since the 1980s when organizations began to see the benets of collaborative relationships. This management concept is, however, nascent in India (Vrat, 1998). Increasing uncertainty of supply networks, globalization of businesses, proliferation of product variety and shortening of product life cycles have forced Indian organizations to look beyond their four walls for collaboration with supply chain partners.

International Journal of Physical Distribution & Logistics Management Vol. 33 No. 7, 2003 pp. 582-606 q MCB UP Limited 0960-0035 DOI 10.1108/09600030310499277

Changes in the environment have been so dramatic and sudden that Indian organizations have realized the inappropriateness of competing effectively in isolation from their suppliers and other associates of supply chain. Rather, the need for adopting collaborative methodologies, at this stage, is more than ever before because of the recent economic deregulation and globalization of the Indian industry. The traditional protective economic, industrial and organizational boundaries have been demolished (Saxena and Sahay, 2000). While emerging markets offer opportunities they also bring along new rivals. Information networks and technological convergence are re-dening the rules of economic and trading relationships within the country. Hence, it has become necessary for Indian organizations to look for methodologies and processes that produce maximum efciency both within and beyond their operations (Sahay, 1999). For most Indian organizations, which have hardly ever operated in an open economy, working along with the right business partners (suppliers, customers and service providers), fostering trust between them and designing the right system of gauging performance is altogether a new ball-game. And the statistics show it all. The Indian industry spends an exceptionally high amount of 14 percent of its gross domestic product (GDP) on logistics. Close to 22 percent of the aggregate sales, amounting to over US$25 billion, is tied up in inventories in the supply chain network countrywide (Korgaonker, 1999a, b). Although India, with a population base of over a billion, is one of the fastest developing economies of the world, it needs a different approach to put its economy on the path of sustainable economic growth. Indias economic and infrastructure scenario Before the 1990s, Indian organizations operated in a protected environment. There was very little competition even amongst domestic players. Business was driven by almost monopolistic strategies. However the de-regulation of the Indian economy in the last decade has attracted global players in every industrial sector and has unleashed a new competitive spirit in the Indian organizations (Saxena and Sahay, 2000). Statistics reveal that India, the fth largest country in terms of gross national product (GNP) and purchasing power parity (PPP) (World Bank, 1999) and a consumer base of over a billion (CMIE, 2000), constitutes one of the fastest growing markets in the world. India is also counted among the richest with regard to cheap skilled labor, scientic and technological resources and entrepreneurial talents. However, India lags behind in competitiveness because of various factors. These include continued reliance on licensing rules, price controls, state ownership of crucial undertakings, currency controls, barriers to trade along with political instability and a high level of corruption. Another distinct characteristic of the Indian economic environment is the inadequacy of basic inputs normally required to support organized economic

Supply chain management practices 583

IJPDLM 33,7

584

activity. The Indian infrastructure comprising roads, railways, airports, seaports, information technology (IT), telecommunications and energy production is considered very poor as compared with other developed and developing countries. The overall Indian infrastructure is rated 54th among 59 countries in comparison to other developing countries (World Economic Forum, 2000): . Roads. By the end of 1996-1997, India had a total of 24.66 lakh km of road length network. According to estimates of the Planning Commission, the roads carried just 11 percent of goods and 28 percent of passengers during 1950-1951. The proportions stood at 60 percent for goods and 80 percent for passengers during 1995. Express and national highways constitute only 1.4 percent of the total road length, but carry nearly 40 percent of total road trafc. Reach in the interiors of the mainland is limited with only 48 percent of the 0.55 million villages being connected with roads. This poses a serious limitation of access and connectivity to rural markets. In spite of the vast road transport network, India is rated 56th (Porter, 2000) in terms of the competitiveness on road infrastructure. This is primarily because the quality of roads plays a pivotal role towards safe and swift transportation of goods and Indian roads are of poor quality. . Rail transport. The Indian railway network is the second largest railroad system in the world covering a route length of 81,511km. This facilitates 4,630.05 million passengers and 450 million tonnes of freight movement every year (CMIE, 1999). However, in terms of the quality of rail infrastructure, Indian railways are rated 25th among 59 nations (World Economic Forum, 2000). This results in the slow average speed of freight movement and low average wagon turnaround time, which are major concerns for the logisticians in the country. . Airports. The six international and 87 domestic airports handle 0.22 million metric tonnes of domestic cargo and 0.468 million metric tonnes of international cargo, which is extremely poor in terms of world standards. As a result, the quality of airport infrastructure is rated 40th among 59 countries (Porter, 2000). This poses a serious limitation in procurement, especially when companies are looking at adopting global sourcing strategies to reduce costs and enhance product quality. . Seaports.There are 11 major ports that handle the total foreign trade of the country amounting to 271.92 million tonnes (CMIE, 1999). The facility and infrastructure of Indian ports are rated 51st among 59 countries (Porter, 2000) primarily on account of lack of storage space and outdated handling equipment. . Telecommunications. With a teledensity (number of phone lines per 100 persons of the population) of 3.6 in March 2001, the telecommunication

network in India is one of the largest telecommunications networks in Asia. This capacity has increased to 4.89 with the availability of cellular and WLL operators. However, it drastically lags the global average of 17.2. Developing countries like Brazil and China have a teledensity of 21.8 and 13.8 respectively. Developed countries like USA and UK have teledensity of 66.5 and 58.8 respectively. As a result, delivering low-cost voice telephony and low-cost high-speed computer networking for communication and business integration remains a big challenge in the Indian scenario. IT. The 43 Internet service providers provide Internet access to 5 million users in the country. In 2001, the IT expenditure of 3.46 percent of GDP resulted in a computer density (PCs per 1,000 persons of the population) of 1.5 making the reach and availability of IT services far from desirable. A major part of this is due to the non-availability of wide area networks in the public domain as well as lack of awareness by the users.

Supply chain management practices 585

All the factors related to infrastructure stated above have adversely affected the supply chain network in the country both in terms of lead-time and costs (Korgaonker, 1999a, b). Indian organizations were ill-prepared for meeting the challenges effected by an open economy and had not developed the required infrastructure to meet the eventuality created by globalization of businesses and deregulation of the Indian economy. The challenge in such a scenario is to come out of the comfort zone provided by a protected economy, redesign and implement bold policies with emphasis on effective mobilization of resources, achieve sustained export growth, and eventually develop competitive strategies to have a sustained GDP growth rate of over 7 percent (Rao, 1998). Need for research To succeed today and to pave the way for a better future, Indian organizations need to create strong linkages with their business partners using the concept of supply chain management. More and more Indian organizations today are realizing the importance of developing and implementing a comprehensive supply chain strategy and then linking this strategy to the overall business goals. A collaborative research titled Supply Chain Management Practices in India was taken up by Management Development Institute, Gurgaon, India and KPMG India in this regard. The ndings conclude that lapses exist, in the manner in which supply chains are organized, all along the supply chains in India. Research objectives The research study was taken up to address the concerns raised by managers, expert professionals and academicians on issues of supply chain at the national level.

IJPDLM 33,7

586

This paper focuses on the status of supply chain management in India along the four major dimensions of supply chain namely supply chain strategy, supply chain integration, inventory management and IT in the Indian set-up. The reason for focusing on the rst three dimensions for supply chains in India, has been derived from the score of criticality of supply chain processes (exhibited in Table I). With customer service/satisfaction scoring the highest in terms of importance to business objectives and criticality to supply chain strategy, it is imperative to focus on supply chain strategy and analyze its alignment with business strategy. The criticality of demand management and inventory management makes it necessary to look into the aspect of supply chain integration and inventory management respectively. Finally a study of the fourth dimension, IT, is essential as it is an enabler for businesses looking forward to perfecting their supply chains all across the globe. It is the factual component that provides the global scope needed to make optimal decisions and on which decisions about each of the other dimensions are based. Research methodology To fulll the research objectives, a comprehensive survey questionnaire was designed to capture the facts, gures as well as qualitative responses about the supply chain practices in organizations. It quantied the extent of deployment of supply chain strategies, the structure of supply chain in various industry sectors and the problems encountered in organizing supply chain systems by organizations for strengthening supply chain management. A pilot survey was conducted to access the appropriateness of the questionnaire for executives in Indian organizations. The methodology adopted has been depicted in Figure 1. Demographic details The survey questionnaire was mailed across to 1,733 target organizations in various industry segments in India. The target population was drawn from the list of Confederation of Indian Industries (CII) and Associated Chambers of
Supply chain process Customer service Demand management Inventory management Order processing/fullment Manufacturing Product development Transportation Distribution management Import export management Promotion planning Warehousing Criticality score 4.38 4.22 4.19 4.05 3.97 3.53 3.43 3.43 3.32 3.18 3.03

Table I. Criticality of supply chain processes

Supply chain management practices 587

Figure 1. Schematic diagram of research methodology

Commerce and Industry of India (ASSOCHAM) across all industry segments in India. Responses were received from 156 companies, giving a response rate of 9 percent. As the response rate was low, there was a possibility of non-response bias in the mail surveys. Although the response rate compares well with research studies (Saxena and Sahay, 2000; Korgaonker, 1999a, b) conducted in manufacturing sector across Indian organizations in the past and therefore seems to be reasonably acceptable. Nevertheless, almost 91 percent of the organizations receiving the survey questionnaire did not respond, raising the issue of a non-response bias in the current study. Does this fact introduce any bias to the data and implications derived from the responding organizations? That is, do the results reported in this study misrepresent the true experiences and opinions of supply chain management practices in Indian industry? This issue was validated by using chi-square test with 95 percent condence level and found that: . The distribution of the response group by geographical area and industry category shows no signicantly different pattern relative to the population data.

IJPDLM 33,7

588

There are no signicant differences in responses received before reminder and after reminder. Reminders were sent to the organizations that did not respond to the rst mailing. The purposes of reminders was to get more responses as to ensure representation of all the major industry and regions and to provide data relating to any non-response bias in the original survey. This facilitated analysis and also increased the number of responses in each industry. As a result, the representativeness of the response group was improved; that is, the non-response bias probability was managed. As is typical, the response rate was approximately 5.6 percent of the rst mailing and additional 3.4 percent after reminders. This follow-up did assist in generating a reasonable overall response rate of 9 percent and led to obtaining a representative picture supply chain practice in Indian industry. Further, the characteristics, experiences and opinions of the respondent organizations after reminder are not signicantly different to those obtained by the rst mailing.

Therefore validity was provided for the results of the representative sample size and eliminating the non-response bias. The responses are comparatively better from public limited company which constituted nearly three-fourths (75 percent) of the total sample, followed by private limited (18.6 percent) and public sector (6.4 percent) organizations. Out of 93.6 percent responses from private and public limited companies, 32.8 percent of responses were received from multinational companies (MNCs). The prole of the respondents is represented in the Figure 2. The 156 responding organizations belonged to over 16 industry segments including agri products, automotive, chemicals/fertilizers, computer hardware, consumer durables, engineering, fast moving consumer goods (FMCG), metals, oil/gas, pharmaceuticals, retail, telecommunications, textile/apparel and transportation. However, the majority of the respondents were from engineering, chemicals, FMCG/retail, automotive, consumer durables and

Figure 2. Participation by management level

electronics (Figure 3). However, results of the study may not been extrapolated for all individual industry segments because of the sample size not being representative for individual categories. The respondents were requested to ll out a survey questionnaire so as to elicit responses on the supply chain and logistics issues faced by their organization. Quantitative responses were measured using a ve-point Likert scale ranging from 1 strongly disagree to 5 strongly agree. In addition to the survey questionnaire, the response received was validated through personal interviews by the research team. The research team interacted with the top management of 52 of the responding organizations to gain an insight into the business strategies and their focus toward supply chain in achieving competitive advantage. Research results and analysis The results of the survey have been summarized, in the following sub-sections, along the four major dimensions namely:

Supply chain management practices 589

Figure 3. Classication of respondents by industry

IJPDLM 33,7

(1) (2) (3) (4)

supply chain strategy; supply chain integration; inventory management; and information technology.

590

Dimension 1: supply chain strategy Strategy can be dened as a set of dynamic, integrated decisions that one must make in order to position ones business in the complex environment. Thus, strategy represents the overall actions or approach to be taken to achieve the rms goals and business objectives (Gattorna, 1998). Todays business environment, as explained in the introductory sections, cannot be addressed by strategies characterized by individual organizations looking to achieve dominance against all competitors and solely relying on order-winning criteria that are product-based. Instead, it requires a focus on synchronized management of the ow of physical goods, associated information and allied services from sourcing through consumption (Christopher, 2001). Supply chain management covers the entire gamut in its decision-making framework. Hence, the need for supply chain strategy for competitive advantage in contrast to what it was earlier, demanding top-level management attention. By elevating supply chain management to the heart of decision making in the boardroom, and uniting corporate and supply chain goals, companies can boost protability, enhance growth and substantially increase the shareholder value (Sahay, 2000). The challenge is to take supply chain to a more strategic level within the rm so as to have a sustainable business impact, and not just be content with managing it. Business objectives. All the organizations were asked to prioritize their business objectives on a ve-point scale, with a score of 1 indicating not important and a score of 5 indicating very important. These strategic objectives included maximizing prots, turnover, return on investment, earning per share, value to shareholders and customer satisfaction. It is heartening to note that the objective of increasing customer satisfaction surpassed the objectives of maximizing prot and delivering highest value to shareholders (Table II). The companies have realized that short-term prot making does not lead to accomplishing long-term growth and prot maximization. Hence, their emphasis on providing customer satisfaction.
Overall business objectives Maximize customer satisfaction Maximize prot Increase turnover (sales) Increase return on investment Deliver highest value to shareholders Increase earning per share Weighted score for importance 4.82 4.46 4.37 4.28 4.27 4.02

Table II. Importance of overall business objectives

Supply chain objectives. Todays business world is dened by change. Externally, there are powerful and global competitors, inuential customers demanding more complex and varied services at less cost, and the increasing implications of mergers and acquisitions. Internally, there are stock-holders requiring a constant increase in returns. The future success of an individual company will depend on its ability to weather and manage the forces of change. When a company nds itself struggling to maintain prot margins, a renewed focus on supply chain strategy becomes more important. Analysis of weighted scores of various supply chain objectives indicate that enhancing customer service/satisfaction outscores all other objectives in terms of their effectiveness in the supply chain management. At the same time, expanding revenue (sales), reducing inventory cost and improving on-time delivery follow closely in terms of supply chain priorities (Figure 4). Undoubtedly, all the four objectives stated above are the most vital and basic criterion for any supply chain management strategy to produce tangible results, which is well understood by the top management. Improvements in these metrics have a direct effect on the bottom line of the organization. Mapping business objectives with supply chain objectives. The supply chain objectives were then subjected to a factorial analysis. The cumulative sum of three-factor loadings explains over 52 percent of the variation. The three factors were then compared with the weighted score for importance from business objectives. The business objectives and the supply chain objectives

Supply chain management practices 591

Figure 4. Importance of supply chain objective to top management

IJPDLM 33,7

592

could be broadly classied under three key focal areas (factors) customer service, prot maximization, operational excellence as listed in the Table III. A closer look at the supply chain objectives and business objectives covered under each focal area (factor), reveal that the two are in congruence with the top as well as the bottom scores of each classication falling under the same focal area. A comparative of the rst focal area on customer service highlights the fact that a key criterion of customer satisfaction is the quality of the product and the availability of product. Quality of product is characterized by highly reliable product and best product performance while availability of product is a function of expanding width/depth of distribution and having products in stock. These parameters are very much the guiding factor while taking supply chain decisions in India to maximize customer satisfaction. The second factor of prot maximization, matches the importance of expanding sales revenue, reducing inventory cost and other cost factors with the business objectives of maximizing prots and increasing sales turnover. This
Focal area High: customer service Business objectivesa Maximize customer satisfaction (4.82) Supply chain objectivesb Enhance customer service/satisfaction (4.93, 0.368) Highly reliable product (4.57, 0.834) Best product performance (4.51, 0.844) Reducing transportation costs (3.96, 0.472) Expanding width/depth of distribution (3.62, 0.512) Having products in stock (3.43, 0.660) Expanding revenues (4.56, 0.407) Reducing inventory costs (4.52, 0.672) Improving on-time delivery (4.43,) Lowest product cost (4.37, 0.572) Reducing order to delivery cycle time (4.33, 0.859) Reducing lead time (4.28, 0.830) Flexibility of production volume (4.17, 0.679) Flexibility of product mix (3.90, 0.679) Innovating new product/services (3.88, 0.500) Reducing warehouse costs (3.68, 0.441) Reducing/rationalizing supplier base (3.64, 0.633) Offer broad product line (3.50, 0.702)

Medium: prot maximization

Low: operational excellence

Maximize prot (4.46) Increase turnover (sales) (4.37) Increase return on investment (4.28) Deliver value to shareholders (4.27) Increase earning per share (4.02)

Notes: Table III. a Figures in brackets indicate weighted mean scores for each parameter Mapping supply chain objectives with business b Figures in brackets indicate (weighted mean score, rotated factor loadings) for each parameter. Rotated factorial loadings have been computed using varimax method in Minitab objectives

is shaped by the current environment in which the companies operate in the Indian economic scenario to drive productivity improvements in each business function. Given that US companies appear to focus their efforts on cost reduction, it is surprising that Indian companies are different. The reason for this difference stems from the manner of evolution and development of manufacturing and supply chain in the two countries. Supply chain practices in the USA started with a focus on streamlining and integrating of various processes running across functions and organizations. This was undertaken with the objective of evolving a holistic view of all the activities undertaken in the supply chain. The second stage involved making the supply chains customer-driven or customer centric so as to deliver bottom-line results. The third stage was to pass on further benets to the end-customer, by focussing on cost, throughput and delivery time. This is the crucial stage that helps make supply chains develop the competitive edge for businesses. While US organizations have moved over from integration of businesses to demand-supply alignment to a focus on cost reduction, Indian organizations are far from it. This has primarily been because of the business environment in India, as stated earlier. With increasing competition ushered in by deregulation and globalization, Indian companies have realized the need to have a high degree of customer orientation in their business activities both in terms of product offerings and services. As the research data reveal, companies have given highest priority to customer satisfaction as far as both business objectives and supply chain objectives are concerned. However, they have already begun to feel the global pressures of driving down costs. Thus, as far as the evolution of supply chain is concerned, the Indian companies are no different. However, they are denitely at a different stage of the development and maturity of adoption of supply chain practices with respect to their US counterparts. Dimension 2: supply chain integration The supply chain strategy cannot truly be aligned to overall business strategy (unless all the functions of the enterprise are integrated and unless strategic relationships have been established with supply chain partners) based on trust and information sharing, so that it can quickly respond to customers demand with unique and tailored offerings. Effective integration is the key because if one of these links fail, the organizations performance may suffer and may not meet the expectations of its customers, or the service level of its competitors. The primary benet of integration is that all business units and supply chain partners share the same data, synchronize actions and minimize distortions in demand management (Kalambi, 2000). Supply chain processes. In most of the organizations, supply chain management covers the processes of demand management, manufacturing

Supply chain management practices 593

IJPDLM 33,7

594

planning and scheduling, inventory management, order processing and fullment, warehousing, transportation, distribution management, import/export management, product development, promotions planning and customer service. The criticality of these supply chain processes was evaluated by the respondents on a ve-point scale. A score of 1 on the scale indicated not critical and a score of 5 indicated very critical process for the organization. Table I presents a weighted score for criticality of supply chain processes (on a scale of 1 low to 5 high). Customer service ranks as the most critical process for the respondents. As many as 63.8 percent of organizations rate it as being very critical to their supply chain strategy. Following closely are demand management, inventory management and order processing/fullment with over 40 percent of the respondent base in each category classifying them as most critical. The supply chain processes like customer service, demand management, inventory management and order processing/fullment show a sincere concern of the Indian organizations to improve customer service as well as to depict their increasing understanding of the need to perfect customer-centric processes. The focus on inventory management gives testimony to the fact that the Indian industry has realized that the inventory levels will have to be monitored and maintained at the lowest possible level, without compromising on customer service, in order to deliver superior bottom-line results. Surprisingly, warehousing scores the lowest in terms of criticality among all the supply chain processes. However, the process needs to be re-examined because of the increasing importance of developing superior warehouse management systems to back up the inventory management systems. Management focus on supply chain processes. The individual scores on important supply chain issues were then subjected to a factorial analysis. The cumulative sum of three-factor loadings explains close to 60 percent of the variation. The importance of supply chain processes under the three factors were matched with the extent of time devoted by supply chain personnel across the various constituents of supply chain like order fullment, inventory, compilation of information for decision making, distribution, statutory requirements, quality, to mention a few. Table IV presents the weighted scores (on a scale of 1 low to 5 high) on the extent of time devoted by supply chain personnel on various issues pertaining to supply chain management and maps them with the three focal areas of businesses identied earlier. The results reiterate the focus on customer service among Indian organizations, as an important constituent of business and hence supply chain strategy. This is complemented with the management focus on quality to deliver highly reliable product and best product performance and demand forecasting to ensure availability of product.

Focal area High: customer service Medium: prot maximization Low: operational excellence

Supply chain issuesa Customer service (4.30, 0.813) Quality (4.11, 0.691) Demand forecasting (3.58, 0.544) Order fullment (4.20, 0.699) Inventory management (3.83, 0.667) Compilation of information (3.57, 0.797) Transportation (3.49, 0.621) Distribution (3.35, 0.866) Statutory requirements (3.18, 0.678)

Management focus (time devoted) High

Supply chain management practices 595

Medium Low

Table IV. Mapping management Note: a Figures in brackets indicate (weighted mean score, rotated factor loading) for each parameter focus with supply chain issues Rotated factorial loadings have been computed using varimax method in Minitab

The second factor encompassing supply chain issues of order fullment, inventory management and compilation of information sum up the protability of the business. With integration of various constituents of business through technology yet to become a reality for the Indian organizations, the above three areas take away a major chunk of management time and energy. A positive observation here is the low levels of time devoted to the issues related to operational excellence (third factor) primarily on account of the increased outsourcing of these activities. Supply chain processes matrix. For the purpose of the survey, the supply chain processes were classied on a two-dimensional matrix (Figure 5): (1) primary focus of process (enterprise vs intra-enterprise); and (2) level of interaction required for the process (high vs low). Enterprise covers processes which have a greater focus on internal processes (e.g. product development, manufacturing) while intra-enterprise covers

Figure 5. Supply chain process matrix

IJPDLM 33,7

596

processes having greater focus on processes external to the enterprise i.e. oriented towards external stakeholders (e.g. demand management, customer service, order processing/fullment). Low level of interaction refers to low to medium level of interaction with other enterprise and/or inter-enterprise processes, while high refers to medium to high level of interaction with other enterprise and/or inter-enterprise processes. It is interesting to note that processes that relate to enterprise supply chain with low level of interaction with other processes come out as less critical. However, those that involve intra-enterprise interface or integration with high level of interaction with other processes emerge as highly critical. Dimension 3: inventory management Management of inventory has received considerable attention over the years. Managers ascribe different reasons for holding or not holding inventory. Some of the major reasons for holding inventories by Indian organizations include: improving customer service; hedging against price changes and contingencies; achieving production, purchase and transportation economies; protecting against demand and lead time uncertainties; and balancing supply and demand. They are also conrmed by the present study. Each of these motivators is presented here under: . To improve customer service. As depicted in Table III, enhancing customer satisfaction/service ranks high among the respondents for achieving both business objectives and supply chain objectives. With businesses wanting to enhance customer satisfaction, higher levels of inventories need to be maintained to fulll customer demand. . To hedge against price changes and contingencies. The research data revealed that about 33.7 percent respondents indicated seasonality of demand in their businesses with end of calendar year (October-December) as the most common season (Figure 6). Table V provides percentage of sales in season for percentage of respondents. That is, more the seasonality factor in the demand and the difference in demand requirement of products in season and during the rest of the year, the more are the complications in supply chain design and

Figure 6. Seasonality of demand

planning. Businesses are forced to hedge against price changes and contingencies by maintaining high inventory levels so as to fulll demand during the peak season. The demand of products for Indian organizations varies not only across seasons, but also within a month. This holds true for all the months round the year. A total of 61.2 percent of respondents indicate a month-end skew in sales and over one-third indicate year-end skewness in sales, which is a very high gure (Figure 7). The extent of skew indicated was 10-24 percent for 28.7 percent of the respondents, 25-50 percent for 40.7 percent of the respondents and over 50 percent for 20.4 percent of the respondents. This not only increases the complexity of supply chain management, but also is the main contributor to the building up of inventory during the month. To achieve production, purchase and transportation economies. Figure 7 depicts that 24 percent of respondents plan for nished goods inventory based on manufacturing capacity. This is primarily to achieve production and purchase economies, and results in excess inventory in the system. To protect against demand and lead time uncertainties. The lead times in the supply chain network in India are high. This is brought to the fore by the respondents during the course of the study. About 15.8 percent of respondents indicate a lead time of over a month to fulll domestic orders. About 45 percent of the respondents indicate one- to four-week lead time and 55 percent of these would like to bring it down to below one week. A total of 28.6 percent of respondents quoted a lead-time of up to a week and 25 percent of these would like to bring it down further (Figure 8). Furthermore the research also reveals that only 50.8 percent of the respondents have both an average shipment accuracy as well as average
% respondents , 50 50-60 60-75 75-90

Supply chain management practices 597

% of sales in season 36.5 22.3 25.9 15.3

Table V. Percentage of sales during season

Figure 7. Skewness of sales

IJPDLM 33,7

598

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

on-time order ll rate of over 90 percent forcing companies to carry inventories to enhance customer satisfaction. To balance supply and demand. Supply chain planning thrives on the accuracy of demand forecasting. Respondents state having used a host of techniques and methods for demand forecasting. Popular methods in use for forecasting demand included simple average (23.8 percent), time series (19.5 percent), regression (8.9 percent) and causal models (7.7 percent). However, only 45.6 percent of the respondents indicated a forecast accuracy of ^ 10 percent with about 32.4 percent at ^ 25 percent (Figure 9). These accuracy levels are low forcing organizations to carry a high level of inventory in the supply chain network.

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

Figure 9. Percentage accuracy of forecast

marketplace. In order to make the system more responsive, organizations are adopting pull-based systems for inventory replenishment. Globally, while pull-based systems are being much talked about, 84.1 percent of the respondents indicate use of push-based inventory replenishment systems in India. A few companies (15.9 percent) have turned to pull-based inventory replenishment process, where inventory is replenished by suppliers, based on movement of product on the shelves and amount of inventory remaining. As a result the inventory replenishment process in a pull-based system, in which production is demand driven, to co-ordinate with the actual customer demand. It is surprising to note that in todays environment where the customer can almost expect his/her requirement to be customized, the push system dominates all Indian industries, where most industries still believe in manufacturing to build up stocks. Obviously most companies believe in the principle that they should ood the distribution system with stocks, which would help increase off-takes, and ward against the fear of losing sales to competition. Inventory planning process for nished goods. Recent inventory management practices dictate achieving zero stock levels for nished goods and taking up of production against rm orders. However, only 11.1 percent of the respondents indicate pure make to order (MTO) environment. 47.9 percent indicate planning for nished goods inventory based on orders booked or existing order backlog and 22.9 percent indicate planning for nished goods inventory based on manufacturing capacity (Figure 10). Globally, the stock holding policy is a function of the product characteristics. Core business products which gure highly predictable ow rates should have minimum (zero) stocks. Stock holding of seasonal products, which are slow moving, critical, perishable and whose peaks are relatively predictable, are to be minimized, building them only during peak demand period. Fad products, with highly unpredictable levels of demand, high criticality and long lead times, essentially must hold high level of stocks thereby allowing safety margin for delivery, lead time and demand uctuations (Gattorna and Walters, 1996).

Supply chain management practices 599

Figure 10. Rate of non-moving inventory

IJPDLM 33,7

Non-moving inventory. About 82.7 percent of companies indicate rate of obsolescence of inventory to be less than 10 percent, while 3 percent indicate the obsolescence at 25-50 percent (Figure 11) requiring an urgent focus by organizations to release blocked resources. Dimension 4: IT Information is a driver whose importance has grown as organizations have used it to become both more efcient and more responsive. The tremendous growth of the importance of IT is a testimony to the impact information can have on improving an organization. As the importance of information grows, so does the importance of IT in gathering and analyzing those data to make a decision. Information deeply affects every part of the supply chain to maximize total supply chain protability. It serves as the connection between the various stages of supply chain allowing them to co-ordinate their actions and schedule daily operations. The scope of the supply chain that is covered by the IT system and the systems level of functionality help decide the applicability of IT system for the supply chain. However, the choice of IT system needs to make the trade-off between the cost of information (a reduction in efciency) and the responsiveness that information creates in the supply chain (Chopra and Meindl, 2001). IT budget and spending. Current levels of IT budget in the organization are even less than 0.1 percent of gross sales for 13.5 percent of the respondents, 0.1-1 percent of gross sales for 42 percent and 1-3 percent of gross sales for 23.5 percent of the respondents. The overall average IT spending of 1.3 percent of the respondents is denitely low compared with the overall global average of 4.93 percent on IT spending. However, organizations have planned for a major increase in their IT investment levels in the coming years. The projected level of IT budgets in the coming years are 1-5 percent and more of the gross sales for over 47.6 percent of the respondents (Figure 12). For most of the organizations the proposed IT budgets represent an increase of over 100 percent in their IT spending in the coming years. With IT being the bedrock for a successful supply chain strategy execution, this step should make

600

Figure 11. Methods of inventory planning for nished goods

Supply chain management practices 601

Figure 12. Current and projected levels of IT budget

the Indian organizations capable of reaping the benets of supply chain management. Present usage of IT applications. A look at the usage pattern of software packages in the organization reveals that there is a clear bias of using stand-alone modules instead of adopting integrated solutions. A total of 61 percent of respondents are using software package for materials accounting in the Indian environment. Software packages for enterprise resource planning (ERP)/manufacturing resource planning (MRPII) and sales and distribution are used by 48.6 percent and 43.8 percent respondents respectively. The high percentage usage of ERP/MRPII packages despite low IT spending is because of the fact that Indian companies prefer to use in-house developed software, as compared with standard packaged solutions e.g. SAP, Oracle, Baan, etc. and therefore, do not require large nancial investments. As per our study, only 33 percent of respondents prefer to use packaged solutions whereas 67 percent of companies use in-house/custom-developed solutions. Warehouse management, supply chain management and demand management applications are yet to percolate in Indian industry. The applications and the percent respondents using them is presented in Table VI. It needs to be noted that supply chain management solutions are used by only 17.1 percent of the respondents, which is an area of concern in developing supply chain capabilities. Software packages popularly in use by industry are: . Engineering, automotive materials accounting, computer-aided design (CAD) and drafting, ERP/MRPII. . Chemicals and fertilizers, FMCG materials accounting, sales and distribution. . Textile sales and distribution. . FMCG materials accounting. . Metal process control and optimisation, shop scheduling and loading.

IJPDLM 33,7

Application

% respondents using IT 61.0 48.6 43.8 32.9 19.2 17.8 17.1 15.8 13.7 13.0 11.6 9.6

Materials accounting ERP/MRPII Sales and distribution CAD/drafting Shop scheduling and loading 602 Warehouse management Supply chain management Process control and optimization Demand management Engineering data management Manufacturing execution system Table VI. Usage of IT applications Computer-aided process planning

IT applications operations covered and proposed. Operations covered by existing applications include inventory management, order fullment, warehouse management and sales returns, in that order. Existing IT solutions encompass the business operations covering inventory management, order fullment, warehouse management and sales returns. All of these areas are primarily restricted to the boundaries of the enterprise. Operations to be covered with proposed applications include barcoding, electronic data interchange (EDI) with customers, EDI with suppliers, monitoring costs/performance, distribution network planning and freight cost management. Table VII presents the coverage of various operations in the existing and proposed applications.

Operation Inventory management Order fullment Warehouse management Sales returns Monitoring costs/performance Lot tracking Distribution network planning Freight cost management Barcoding Distribution requirement planning Automatic freight payment EDI with suppliers Facility network planning Table VII. EDI with customers Operations covered by current and proposed IT EDI with carriers Mobile solutions applications

Existing application (% respondents) 60 46 36 34 30 15 14 10 8 8 7 5 5 4 2 1

Proposed application (% respondents) 14 25 21 18 29 18 29 29 36 18 19 33 23 34 25 18

Not surprisingly, the proposed IT solutions show a clear shift to areas which involve networking with business partners and focus on logistics. The future areas of operations for IT solutions include facility network planning, barcoding, EDI with carriers, customers and suppliers, freight cost management and mobile solutions being on the business plans of as many as 80-90 percent of the respondents. Where do we go from here? Summarizing the analysis and the ndings of the research data, the paper proposes four actionable points for perfecting the supply chain. These have been developed to address each of the areas explained in detail below: (1) Align supply chain strategy with business strategy. First and foremost, it is the alignment that matters. No matter which industry one chooses to operate in, the supply chain strategy must holistically align with the business strategy. Presently, a majority of Indian organizations have a weak alignment of supply chain strategy with business strategy as a result of which the actions do not result in bottom-line gains. This is primarily so, because the organizations are rigidly structured along functional lines with department-specic performance measures. They have failed to adopt performance metrics, which are derived from a supply chain objective to meet business needs. As a rst step, Indian organizations need to resolve the performance measurement issue so that the departmental metrics are aligned with the overall supply chain objective to meet the business objective. (2) Streamline processes for supply chain integration. As the survey reveals, most business executives in Indian organizations have realized the dire need to straighten up their supply chains for protability and competitiveness. However, not many of them have given a serious thought to putting an integrated structure in place. To overcome this, Indian organizations need to change the way people think about supply chains the onus of which falls on the top management. It is this supply chain mindset of evolving an integrated structure, which will determine the end result. It also requires supply chain managers to understand business processes that run across organizational boundaries, establish their interdependencies, streamline or reengineer them so that they meet customer requirements. It is only with thoughtful and thorough understanding of business processes that such integration can be achieved. (3) Attack inventories through partnerships. Supply chain management provides the ability to capture demands from the market, quickly translate it to supplier requirement and nally fulll consumer needs. With no single entity competent enough to carry out all the activities in the demand fullment process, the entire exercise involves forming

Supply chain management practices 603

IJPDLM 33,7

604

alliances with supply chain partners. Partnership and strategic alliances form the bedrock of such a competitive supply chain strategy. It calls for Indian organizations to collaborate with supply chain partners for product design, product development, logistics, warehousing, market reach, manufacturing and procurement all with the objective of cutting down inventories in the entire supply chain framework. However, this is easier said than done. It involves a dual strategy of fostering trust as well as optimising resources, performance and gains across the supply chain. Successfully accomplishing this twin-objective requires a reciprocal and continuing commitment of human, technical, and informational resources on the part of supply chain partners. (4) Deploy infrastructure and technology as an enabler. Technology, which was earlier mistaken to be a driver for doing business in a particular fashion, has become a necessary enabler for aligning business to consumer demand. It can change the way we capture and analyse information, differentiate products and services, congure and sell existing products, crash order cycle times, introduce new products and so on and so forth. IT can thus achieve breakthroughs in the area of supply chain design, conguration and planning, which otherwise can never be thought about. Not surprisingly, IT tools for Indian organizations are still a luxury with organizations still preparing themselves to harness its power to improve supply chains. However, to compete in todays environment IT tools are a necessity. The size of the organization does not matter as fortunately the cost of technology has been reduced so that even the smallest organization can now afford them. Worldwide, best-in-class companies have invested in enabling infrastructure and technology to realise their supply chain vision into a reality. These include integrated supply chain cost models for decisive inventory management, technology for handling supply chain throughput, and information systems capable of fostering visibility across functional and organizational boundaries. However, successful supply chain management at the enterprise level depends heavily on the state of the infrastructure scenario in the country. Undoubtedly, the state of infrastructure in India has been impacting the industrial and economic performance for long. It requires a concerted effort by the industry and government to dismantle bottlenecks in the completion of infrastructure-related projects and creation of demand-aligned capacities in sectors of logistics and information technology. Deployment of infrastructure and technology to foster collaboration, exibility, speed and accuracy would be the foundation for developing a competitive supply chain framework for Indian organizations.

Conclusion The study has implications for Indian industry. This paper has outlined the supply chain practices followed by Indian organizations giving due coverage to four dimensions namely supply chain strategy, supply chain integration, inventory management and IT. It is recommended that Indian organizations should align supply chain strategy with business strategy in order to deliver highest customer satisfaction, streamline processes for supply chain integration to achieve operational excellence, and form partnerships to minimize inventory and maximize prots. In order to achieve these results the paper suggests harnessing the power of IT. Coupled with this is the action required by the Indian government to improve the infrastructure for the smooth functioning of supply chain. The study may help the Indian industry to ` -vis supply chain practices in other benchmark their supply chain practices vis-a developing economies. Further area of research This research opens the way for other in-depth studies of some of the critical processes identied for supply chain management practices. Detailed case study analyzing some of these processes are a natural component to the results presented above. For example inventory management problem may be further explored in a form of a case study describing some of the methods used to control and utilize stock level. Similarly, further research can be carried out using a specic case to integrate supply chain strategy with business strategy. Business-to-business transaction in India is at an infancy stage. Some detailed study may be carried out in this area. Finally, research could also focus on establishing actual performance improvements in supply chain management reected in cost-saving and customer satisfaction effects.
References Center for Monitoring Indian Economy (CMIE) (1999), CMIE: Economic Overview 1999, CMIE, New Delhi. Center for Monitoring Indian Economy (CMIE) (2000), CMIE: Economic Overview 2000, CMIE, New Delhi. Chopra, M. and Meindl, P. (2001), Supply Chain Management: Strategy Planning and Operation, 1st Indian reprint, Pearson Education Asia, New Delhi. Christopher, M. (2001), Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service, 2nd Indian reprint, Pearson Education, New Delhi. Gattorna, J.L. (1998), Strategic Supply Chain Management: Best Practices in Supply Chain Management, Gower Publishing, Aldershot. Gattorna, J.L. and Walters, D.W. (1996), Managing the Supply Chains, Macmillan, New York, NY, pp. 189-203. Kalambi, N. (2000), Preparing for supply chain management: time is money, Dataquest, special supplement, pp. 5-9.

Supply chain management practices 605

IJPDLM 33,7

606

Korgaonker, M.G. (1999a), Integrated supply chain management part I, MM The Industry Magazine, February, pp. 73-82. Korgaonker, M.G. (1999b), Integrated supply chain management part II, MM The Industry Magazine, March, pp. 73-83. Porter, M. (2000), World Competitiveness Report, a combined study by World Economic Forum and Harvard Business School, The Free Press, New York, NY. Rao, S.L. (1998), Towards a national competition policy for India, Economic & Political Weekly, 28 February, pp. M 31-6. Sahay, B.S. (1999), Supply Chain Management: For Global Competitiveness, Macmillan India, New Delhi. Sahay, B.S. (2000), Supply Chain Management for Twenty First Century, Macmillan India, New Delhi. Saxena, K.B.C. and Sahay, B.S. (2000), Managing IT for world class manufacturing: the Indian scenario, International Journal of Information Management, Vol. 20, pp. 29-57. Vrat, P. (1998), Supply chain management in India: problems and challenges, in Sahay, B.S. (Ed.), Supply Chain Management: For Global Competitiveness, Macmillan India, New Delhi, pp. 10-24. World Bank (1999), World Bank Economic Review, Oxford University Press, Oxford. World Economic Forum (2000), Global Competitiveness Prole of India 2000, The Global Competitiveness Report, World Economic Forum, Cologny, Geneva.