1

Why Study Best Practices ?

Third Millennium : Horse Race in Business

Only the Best of the Best Companies will survive :

DANTOTSU: a Japanese word for Best of

Best

Instead of reinventing the wheel, a study of Best

Practices helps to adopt the ones most suitable
Benchmarking has become a science

Benchmarking for an ideal home: How do you do it ?

2
 BENCHMARKING GOES TOPSY
Heaven is :
Living in an English House
With a Japanese wife
Having Chinese Food
On an American Salary

Hell is :
Living in a Japanese House
Eating English Food
On a Chinese Salary
With an American Wife

3
 ASIA’s 50 MOST COMPETITIVE Cos.
- Asia Inc., Hongkong
Sundaram Fastners Ltd. (16th)
(Winner of General Motors’ “Supplier of the
Year” award)
Reliance Industries (9th)
Ranbaxy Laboratories (11th)
Bajaj Auto (20th)
Other International Companies :
Sony Corporation
Toyota Motor Corporation
Singapore Airlines
4
Sundaram Fastners Ltd.
SFL supplies almost all of GM North America’s
requirements of metal caps, some four-and-a half
million a year – for several types of GM’s
requirements in cars, buses, trucks and there has
not been even a SINGLE rejection in full one year.
“Winning this award is an awesome achievement
since the recipients have exceeded the
expectations of their toughest customers – GM
buyers, GM engineers, & GM plants”
- HaroldR Kutner
VP-Prodn. & Logistics, GM North America

5
 BEST PRACTICES

1. Target 10 : Every year, a cost-saving project with its

vendors is launched, calling for a 10 per cent

reduction in the production cost by improving

material, process and design.

Suppliers’ Cost Structure is attacked,

attacked not profits.

6
2. Tear Down Analysis : Get a sample of the

component, take it apart and work out the cost

structure. For each cost driver, allow a variance

of 15-25 per cent. Calculate the variance of final

cost stage (usually 15-20 per cent) and then

negotiate in this range.

7
3. Purchase Managers’ Pass Book
A Purchase Manager is held responsible for a
group of components, any increase in the
purchase price is debited to his/her account,
while any decrease in the price is credited to
him/her. The manager must maintain a positive
balance at all times. The purchase manager is
not allowed to place orders if his/her balance
becomes negative. She/ he can do so only after
obtaining special permission.

8
4. “Challenge 1020”

Two tiered Rating : Static Rating

Static Rating : For judging for the first time

A supplier is visited by a Commodity Business Team

(CBT)
CBT consisting of Purchase, Materials & Quality

(PMQ)

9
 Rating of Vendors-contd.
CBT gives its rating on a five category scale, based on:
Quality, technical competence, financial stability,
locational aspects, systems & procedures, managerial
competence and industrial relations in following five
categories:

FM : Fails to meet Requirements

MM: Meets Minimum Requirements
MR : Meets Requirements
ME : Meets and Exceeds Requirements
CE : Clearly Exceeds Requirements

Supplier with MM or lower is rejected

10
Dynamic Rating : Cross between a quarterly
report on quality and a monthly report on
delivery. The rating is on a 100-point scale.
With 60% on Quality (PMQ), 20% on Delivery
(Material) and 20% on suppliers’ response to
orders (Purchase).

Challenge 1020 involved adding 10 per cent of

new capable suppliers and removing the bottom
20 per cent of the non-performers. This helps in
improving quality, costs and the expenses
incurred for servicing the vendor chain.

11
5. STABLE VENDOR MODEL OR CHURN
VENDOR MODEL

If a new supplier decides to supply at the

reduced price, the existing stable supplier is
expected to lower his cost further to new or
face the option of vacating the slot.

Cut costs, not corners !

12
 THE VENDOR ARCHETYPE
Best Practices in handling vendor chains that
are in vogue :
Strategic Items :
Focus at the stable
Vendor chain

Leverage/genuine items:
Cubbyhole items : Such commodities can be
Design & ask bought with the quotation.
Vendors to adhere For these Vendor
to the Churn should be made
specifications feasible
13
6. Look at TAC : “At TAC”
Maintaining a static relationship with vendors
can be suicidal. Vendor base becomes stagnant.
Project at TAC : Look at Total Acquisition Cost
(TAC = sum of pure cost, cost of rejection,
inventory, tax, inspection, inward expenditure
and line rejections and not pure costs)
Found a 25-35 per cent difference between the
two.
Hindustan Motor reactivated their Vendors Base

14
7. Empower/ Arm Your Vendors
ssure the start-up a competition-free
environment initially, position engineers at
new 6endor’s operations, help obtain financial
and technical tie-ups.
Annual Vendors Meets, Work3hops, V)sits
Business w)th a handshake
No written contracts; work on Relationships
Consumer Operated Lube Oil Depot (COLD)
Vendors officers posted at Buyer’s premises
as Guest Officers, and the concept of Mother,
Daughter Companies followed in Japan.
15
8. Vendor Satisfaction Index

(a) Bharati Telecom follows a system of 360 Deg

appraisal by the Vendor i.e Vendor is asked
to give a feed-back about how he evaluates
the buying company through an evaluation
format.

(a) Source Rationalistion Index : (Eichers)

Suppliers per part reduced from 2.5 to 1.1

16
9. SFL’s Fruit Salad : Quality practice of
‘Parts Per Million’ Co.
If one wants to eat fruit-salad, one has to wash
each fruit, peel each fruit, cut each fruit, mix
with the necessary cream and it is ready to eat.
On the contrary, you cannot get fruit salad by
running a road roller on all the fruits.

Quality is an obsession and organization wide

culture
Quality has become EQUALITY and is an
essential to do business
17
10. Other Best Practices
CTO Cost Take Out Programme
KIP Knowledge Improvement Programme
ZIS Zero Inventory of Scrap
ZIN Zero Inventory of Non-moving items
ZII Zero Investment Improvements
CEO Meets, Materials Management Week/Day
Celebrations
NIRMA A fine network of kiosks and constantly
moving delivery vans
AMUL Cooperative sourcing milk from small farmers
LIJJAT Cooperative of rural women
Bombay’s Dubba Wallas : Perfect example of
Distribution

18
Best Practices emerge from a creative mindset ..

“If you do business today, with the

practices of yesterday, You will be out
of business tomorrow.” !!

19
Thank You

20
WORLD CLASS MATERIALS
MANAGEMENT

1
21
 OUTLINE OF THE PRESENTATION
➥CHALLENGES OF THE BUSINESS ENVIRONMENT
➥WORLD-CLASS ORGANISATION
➥WORLD CLASS MATERIALS MANAGEMENT
➥CHARTING PATH FORWARD
➥PROFILE OF 21ST CENTURY MATERIALS
MANAGER

2
22
1.0 CHALLENGES OF THE BUSINESS ENVIRONM

☛ 1.1 LIBERALISATION

☛ 1.2 GLOBALISATION

☛ 1.3 COMPETITION

3
23
1.0 CHALLENGES OF THE BUSINESS ENVIRONM

1.4 SPEED :
EVERYTHING MUST BE
FASTER, SOONER, NEWER,
QUICKER

1.5 CUSTOMER
EXPECTATIONS :
PRODUCTS MUST BE
BETTER YET CHEAPER

1.6 INVENT THE FUTURE :

NO MORE PREDICTIONS
4
24
1.0 CHALLENGES OF THE BUSINESS ENVIRONM

 1.7 ONGOING PRACTICE OF :

ANTICIPATE CUSTOMER NEEDS &
COMPETITOR ’S MOVES

 1.8 EXAMINE TRADITIONAL BUSINESS

CYCLES & SUPPLY CHAINS

 1.9 ELIMINATE PROCESSES THAT DO NOT

ADD VALUE TO PRODUCTS OR
MARKET
POSITION

25
5
 1.10 TO GAIN COMPETITIVE ADVANTA

➦ The quality Advantage ➥Doing it RIGHT

➦ The speed Advantage
➥Doing things
➦ The dependability Advantage
FAST
➥Doing things on
➦ The flexibility Advantage
TIME
➦ The cost Advantage
➥Changing what
you DO
6
➥Doing things 26
 2.0 WORLD CLASS
ORGANISATIONS
2.1 “WORLD-CLASS” IS NOT A FIXED
STANDARD

➪ IT IS A MOVING TARGET

➪ WHAT IS ‘EXCELLENT’’ TODAY MAY

BECOME ‘AVERAGE’ TOMORROW

7
27
 2.0 WORLD CLASS
ORGANISATIONS
➧2.2 “WORLD CLASS” IS NOT
NECESSARILY “WORLD
SCALE”

WHAT IS “WORLD CLASS’’ ?

CONFEDERATION OF BRITISH
INDUSTRIES’
AGENDA FOR COMPANIES ASPIRING TO
BE
WORLD CLASS : 8
28
 Manufacturing yesterday
A sea of inventory

Quality Poor
Lon
defects Product Inaccurat
g
ProductioEquipmen Low ion flow e
set n t motivatio inflexible
up inflexibilitdowntime n schedulin
tim y g 29
9
 World-class manufacturing
Just in Time production

Rs WIP Rs

Short High Zero In line Rapid

Flexibl No
set up qualit product flexible
e equipm motivat
time ion y ion flow scheduli
produc ent
defect ng
tion downti
me s
1030
 2.0 WORLD CLASS
ORGANISATIONS
2..3 AGENDA FOR COMPANIES ASPIRING
TO BE WORLD-CLASS
➟ ESTABLISH A CLEAR SENSE OF ‘STRATEGIC DIRECTION ‘ ENSURING THIS IS COMMUNICATED,
UNDERSTOOD AND IMPLEMENTED THROUGHOUT THE BUSINESS AND ITS SHAREHOLDERS.

➟ BENCHMARK AGAINST THE BEST PERFORMERS IN AREAS LIKE PRODUCTIVITY, TIME TO MARKET
AND STOCK-TURN.

11
31
2.3 AGENDA FOR COMPANIES ASPIRING TO B
WORLD-CLASS (contd...)

➟DEVELOP GREATER CUSTOMER FOCUS IN EVERY

FACET OF
BUSINESS
➟RECOGNISE THAT INNOVATION WILL
DIFFERENTIATE
WINNERS AND LOSERS
➟RECOGNISE THAT PEOPLE ARE THE CRUCIAL
FACTOR IN THE
BUSINESS AND INVEST IN THEM 12
32
.0 WORLD CLASS MATERIALS MANAGEM

➛BENCHMARKING AGAINST BEST PERFORMERS

➛CUSTOMER FOCUS (INTERNAL & EXTERNAL)
➛DEVELOP & INVEST IN PEOPLE.
➛PARTNERSHIP SOURCING.
➛CONTRIBUTE TO INNOVATIVE PRODUCTS &
PROCESSES.

➛SENSE OF STRATEGIC DIRECTION 13

33
 3.1 OPERATIONAL
EXCELLENCE
IO N
A T Efficiency :
E R
OP The
C E ratio of input to usable outp
A L EN
L Doing Things Right (DTR)
C E L
E X

Effectiveness :
How well expected
or desired results
are achieved
Doing Right Things
(DRT)
14
34
 3.2 STRATEGIC SUPERIORITY

VISION : The lowest total costs on the

planet

MISSION : To obtain the highest quality

material at the lowest overall
cost with the greatest
flexibility.

15
35
 OPERATIONS & STRATEGY MATRIX

STRATEGY
Wrong ?
Right

x ??

Wrong Right
OPERATIONS

WORLD CLASS = OE + SS
16
36
 PURCHASING STRATEGY !?
HIGH
COMPLEXITY

LOW VALUE HIGH VALUE

HIGH COMPLEXITY HIGH COMPLEXITY

LOW VALUE HIGH VALUE

LOW COMPLEXITYLOW COMPLEXITY

LOW HIGH
VALUE 17
37
3.3 ELECTRONIC COMMERCE

EC IS THE ABILITY TO EXECUTE

TRANSACTIONS BETWEEN TWO
OR MORE PARTIES USING
COMPUTERS LINKED TOGETHER
BY NETWORKS
(like phone lines, cable, TV lines,
leased lines, land-line radio, or
satellite radio)

18 38
 3.4 ELECTRONIC
E - COMMERCE-LINGO

1. Electronic Catalogues
Graphical / Descriptive catalogues of goods and services
2. Electronic Data Interchange (EDI)
The Computer-to-computer exchange of business data in a
standardised format.
3. Value-added Network (VAN)
A third party entity which electronically exchanges in
formation between subscribers and trading partners.

19 39
 E-Commerce Lingo contd.......

Electronic Funds Transfer (EFT)

★ The electronic transfer of cash between
accounts at different financial institutions :
DIGITAL CASH
Electronic / Digital Signature :
★ A mechanism which allows the receiver of an
electronic transmission to verify the sender
and the integrity of transmission through the
use of an electronic key (code) which is shared
by the sender and the receiver

20
40
 3.5 Purchasing via CD-ROM /
INTERNET
➢DIRECTORIES
➢INTERACTIVE APPLICATIONS
➦Educational
➦Informational
➦Allow search across legal text and contracts e.g.
Contract Manager

➢STORAGE TOOLS

21
41
 3.6 PROCUREMENT CARDS

➙ A PROVEN BEST PRACTICE particularly for small value PURCHASES

➙Card providers upgrading their systems, reports, and software
➙Ensure Savings - as number of transactions get eliminated, and
➙Transaction costs get reduced

CITI BANK

CHASE
CHASING CARD BANK
E YOUR PURCHASING MORE PRODUCTIVE

22
42
 3.7 MEASURING PURCHASING PERFORMANCE

➤Making purchases that arrive on time

➤Making purchases that pass incoming quality
assurance inspection
➤Meeting target costs
➤Knowledge of commodities in the purchaser’s
area
of responsibility
➤Ability to control purchase order cycle time

23
43
 MEASURING PURCHASING
PERFORMANCE
➤Ability to cultivate qualified
suppliers
➤Ability to perform work with a
minimum of errors
➤Ability to determine the bottom
price a supplier will
take
➤Amount of complexity of
commodities in
purchaser’s responsibility 24
44
 TYPES OF MEASUREMENTS

Since purchasing has the potential for

making a significant contribution to the
organisation, select measurements that
show value
Cost reduction - the reduction of costs either in
department
processes or in current purchases made by the
purchasing department.

Material Price & Availability - effectively tracking

changes in material price and availability and analysing
the historical data for improved price negotiations.
25
45
 3.8 PURCHASING PERFORMANCE BENCHMARK

The original 19 benchmarks developed by CAPS are :

1. Purchase rupees as a percent of sales rupees

2. Purchasing’s operating expense as a percent of sales rupees
3. Purchasing’s operating expense as a percent of purchase rupees
4. Purchasing employees as a percent of total company employees
5. Sales rupees per purchasing employee
contd.....

26
46
 Purchasing Performance Benchmarks contd........

6. Purchase rupees per purchasing employee

7. Purchase rupees per professional purchasing

employee

8. Active suppliers per purchasing employee

9. Active suppliers per professional purchasing employee

10. Purchase rupees spent per active supplier

contd......

27
47
 Purchasing Performance
Benchmarks contd........
11. Purchasing’s operating expense per
active supplier
12. Change in the number of active
suppliers during the
reporting period
13. Percent of purchases spent with
minority-owned
suppliers
14. Percent of purchases spent with 28
48
 Purchasing Performance Benchmarks contd.........

16. Percent of active suppliers accounting for 90 percent

of purchase rupees

17. Percent of purchase rupees processed through

electronic data interchange (EDI)

18. Percent of goods purchases handled by the

purchasing department

19. Percent of services purchases handled by the

purchasing department.

29
49
 Types of Measurements contd........

The cost of lead-time and its improvement

AUTOMATION
Automating the purchasing and supply department

PRODUCTIVITY
➳Responsiveness to internal customers
➳Co-operation with other organisational functions
➳Supplier development and success of supplier
certification
programs
30
50
 3.9 CEO’S PERCEPTIONS
ABOUT PURCHASING FUNCTION

81% PURCHASING IS IMPORTANT

55% IT IS EFFECTIVE

36% THOUGHT ADDS VALUE TO FIRM’S BOTTOM

LINE

41% HIGH INTEREST IN PURCHASE MEASURES

46% AVERAGE INTEREST

13% NO INTEREST ????

31
51
Remember, for a measure to be
effective, it should be easy to
understand, relevant to your
needs, quantifiable, meaningful
to customers, strategically
motivated and tactically
deployed, and aligned with
organisation business needs and
goals.
By Michael Harding, C.P.M.,
CPIM, Principal of Harding &
Associates in Bristol, Vermont,
and Steven Kranz, C.P.M.

32
52
 CEO’S PERCEPTIONS OF PURCHASING PERFORMANCE

nterested in non-quantitative measures

➙Quality of purchased item

➙Key supplier problems that could

affect delivery of materials

➙Internal Customer Satisfaction

33
53
 CEO’S HAVE CAUSED OR
ALLOWED THE PURCHASING OF
GOODS AND SERVICES TO BE
SPLINTERED IN VARIOUS
A JOR DEPARTMENTS
A M O R
T T
NO TRIBU
CON OST
M
TO ISION
DEC ING
K
MA

34
54
 WHAT THE CEO WANTS
☛ ? PERFORMANCE DEPT.
A HIGH
☛ REPORT SUCCESS : BOTTOMLINE IMPACT
☛ TALK LANGUAGE OF MONEY :
☛ RELATE YOUR ARGUMENTS TO PROFIT &
LOSS
☛ PRESENT YOUR CASE FROM THE CEO’s
PERSPECTIVE
☛ DEMONSTRATE THAT YOUR IDEAS
CONTRIBUTE TO CORPORATE GOALS

35
55
 3.10 INNOVATION

Improvement

Innovation

Continuous
Improvement

Time

36
56
 3.11 INTER-DEPENDECIES : EMPLOYEES

★ WITH EVERY PAIR OF HANDS YOU GET A FREE BRAIN

★ CORRECTING & DIRECTING TO LISTENING & LEARNING
★ COMMAND & CONTROL TO COMMITMENT (SEE
ILLUSTRATION)
★ STOCK TYPE (LIFE TIME EMPLOYMENT) & FLOW TYPE
(TEMPORARY)
★ ON-THE-JOB TRAINING IN JAPAN, WEST-OFF THE JOB,
OBSESSED WITH QUALIFICATIONS
★ THE DAYS OF THE MACHO-MANAGERS IN WORLD-CLASS
COS ARE IN THE PAST

37
57
4.0 CHARTING PATH FORWARD

WHERE ARE WE TODAY?

WHERE DO WE WANT TO
GO ?

HOW DO WE GET THERE ?

GOALS > OBJECTIVES > 38

58
★ 5.0 PROFILE OF 21ST CENTURY
MATERIALS MANAGER

– JOBS IN THE FUTURE CANNOT BE

ASSURED BY THE SKILLS OF THE
PAST

– TACTICAL STYLE MMs WILL BECOME

A RARE BREED

– INSTEAD OF GETTING KNOWN FOR

YOUR TOOLS BUILD A REPUTATION39 59
COGNITIVE ABILITIES
INTELLECTUAL POWER
HOLISTIC THINKING
ANALYTICAL SKILLS

INTERPERSONAL ABILITIES
SELF-AWARENESS SKILLS
COMMUNICATION SKILLS
INFLUENCE SKILLS

TECHNICAL ABILITIES
PROBLEM SOLVING
COMMODITY KNOWLEDGE

40
60
 CHANGE
“ FROM REACTIVE TO
PROACTIVE
FROM TO DEFENSIVE TO
ASSERTIVE
FROM INWARD TO
OUTWARD
FOCUSED
FROM TRADITIONAL TO
DYNAMIC
FROM EXECUTIVE TO
ENTREPRENEUR 61
41
 Isn’t it getting a bit hot?
Well, it will probably soon pass

42
62
I’m having the time
of my life!

43
63
Boiled - MORTAL
44
64
THANK YOU

45
65
BENCHMARKING

66
 Contents
1. Benchmarking
2. Thought
3. Definition
4. Definition
5. Definition
6. Who does it
7. Objectives
8. Change- How Benchmarking help
9. Types of Benchmarking
10. Variations of Benchmarking

67
 Contents
11. Benchmarking : Fundamentals
12. 10- Step Benchmarking process
13. 5 Phases of Benchmarking
14. 5 Phases of Benchmarking
15. Benchmarking
16. Who can help
17. Benchmarking Companies
18. AI&T’s 12- Steps
19. ALOA’s Six Steps
20. Benchmarking Purchasing performance

68
 Contents
21. Benchmarking Purchasing Performance
22. Epilogue
23. Epilogue

69
 BENCHMARKING

INVENTED BY : TAIICHI OHRO

who also developed the Just-in-Time inventory system in

Toyota. He compared the movement of components in Toyota

with that of consumer products in American Super Markets.

THE HOTTEST AND LEAST UNDERSTOOD TERM

70
Benchmarking is … …
“AN ONGOING INVESTIGATION AND LEARNING
EXPERIENCE SO THAT BEST INDUSTRY PRACTICES
ARE UNCOVERED, ADOPTED, AND IMPLEMENTED.

“A PROCESS OF INDUSTRIAL RESEARCH THAT

ENABLES MANAGERS TO PERFORM COMPANY TO
COMPANY COMPARISONS OF PROCESSES AND
PRACTICES TO IDENTIFY THE “BEST OF THE BEST”
AND ATTAIN A LEVEL OF SUPERIORITY OR
COMPETITIVE ADVANTGE.

“A METHOD OF ESTABLISHING PERFORMANCE

GOALS AND QUALITY IMPROVEMENT PROJECTS
BASED ON INDSUTRY’S BEST PRACTICES”.
71
 FORMAL DEFINITIONS
“THE CONTINUOUS PROCESS OF MEASURING PRODUCTS,
SERVICES AND PRACTICES AGAINST THE COMPANY’S
TOUGHEST COMPETITORS OR THOSE COMPANIES
RENOWNED AS INDUSTRY LEADERS”
- Robert C Camp

BM IS A POSITIVE, PRO-ACTIVE PROCESS TO CHANGE

OPERATIONS IN A STRUCTURED FASHION TO ACHIEVE
SUPERIOR PERFORMANCE.

BM is the process of identifying, understanding and adopting

outstanding practices, and processes, from Organizations
anywhere in the world, in order to help the Organization
improve its own performance.

72
 DANTOTSU
a Japanese word which means :
“Striving to be the BEST OF THE BEST”

Logic : Searching out and emulating the best

can fuel the motivation of everyone involved,
often producing break-through results.

73
 WHO DOES IT

Xerox, Ford, AT&T, DuPont, HP, J&J, IBM,

Motorola …

Hindustan Lever, Citibank, RPG Group, Arvind

Mills …

74
 OBJECTIVES

1. To inculcate external orientation instead of

extrapolating from internal practices and past
trends.

2. To establish credible goals

3. To pursue continuous improvement

4. To meet ever-increasing customer expectations

75
 CHANGE - HOW BM HELPS ?
BELIEVE THERE IS A NEED FOR CHANGE : When
you see gaps between own Company and competition,
you want to change.

DETERMINE WHAT YOU WANT TO CHANGE : By

understanding how industry leaders do things, you
identify what you have to change.

CREATE A PICTURE OF HOW YOU WANT TO WORK

AFTER THE CHANGE : By seeing what is possible and
the effect of its adoption by your Company.

BM MOTIVATES TO EVOLVE STRATEGIES TO DRIVE

EFFORTS.
76
 TYPES OF BENCHMARKING

INTERNAL BENCHMARKING :
 Comparison of practices between similar operations within a firm.

COMPETITIVE BENCHMARKING :
 Comparison to the best face-off competitors

FUNCTIONAL BENCHMARKING :
 Comparison of functional activities, even in dissimilar industries for
uncovering innovative practices.

77
 VARIATIONS OF BENCHMARKING
PRODUCT BM :
Comparison between different features and attributes of
products.

PERFORMANCE BM :
Comparison of indicators of a business as a whole, or
divided into critical functions and processes.

PROCESS BM :
Comparison of processes - business, support services
and management

STRATEGIC BM :
Studying and outperforming strategies of competition.

78
 BENCHMARKING :
FUNDAMENTALS
KNOW YOUR OPERATION :
 Assess Strengths & Weaknesses
 Document Work Process Steps & Processes
 Define Critical Performance Measures

KNOW INDUSTRY LEADERS & COMPETITORS

 Practices
 Performance Levels

INCORPORATE THE BEST & GAIN SUPERIORITY :

 Involve line management : Gain Commitment
 Create World-class Work Practices
 Achieve Superior Service Levels of Delivery

79
 10-STEP
BENCHMARKING PROCESS
10. Recycle the Process
9. Implement and monitor
8. Develop Action Plans
7. Revise Performance Goals
6. Communicate Findings
5. Project Future Performance Gaps
4. Analyze Performance Gaps
3. Collect Data
2. Identify Whom to Benchmark
1. Decide What to Benchmark
80
 FIVE PHASES
PLAN, ANALYSE, INTEGRATE, ACT, IMPROVE
(MATURITY)
1. PLANNING :
 What to Benchmark
 Whom to Benchmark
 Data sources and Data collection

2. ANALYSIS :
 Measuring the gap at present
 Projecting the gap into the future

3. INTEGRATION :
 Evolve goals, objectives and strategies and integrate
into business plans and operational reviews.

81
Five Phases contd …
4. ACTION & IMPLEMENTATION :
 Work out specific action plans, milestones, target dates,
persons responsible.

 Implementation : by people who actually perform the

work

 Measure progress and report on NEED TO KNOW BASIS

5. MATURITY :
 Stay current with industry changes and update

 Incorporate best practices in all business processes, it

becomes a standard way of life to change to STAY
AHEAD.

82
 BENCHMARK

A BENCHMARK IS A STANDARD OF

EXCELLENCE OR ACHIEVEMENT AGAINST

WHICH OTHER THINGS MUST BE MEASURED

OR JUDGED.

83
 WHO CAN HELP ?
*AMERICAN PRODUCTIVITY & QUALITY CENTRE
Created
APCQ BENCHMARKING CLEARING HOUSE
*NAPM’s
CENTRE FOR ADVANCED PURCHASING STUDIES

*In India
INSTITUTE OF QUALITY
NATIONAL CENTRE FOR QUALITY MANAGEMENT

84
 BENCHMARK COMPANIES
--------------------------------------------------------------------------
Area Company
--------------------------------------------------------------------------
Assembly Automation .. Ford Motor Co.
Billing & Collections .. American Express
Customer Focus .. Xerox
Employee Suggestions .. Toyota
Industrial Design .. Black & Decker
Information Systems .. General Electric
Marketing .. Proctor & Gamble
Research & Development Corning
Supply Management .. Motorola, Xerox, Ford Motor
Co.
Training .. Caterpillar
------------------------------------------------------------------------------

85
 AT & T’s 12-STEPS

1. Determining who the clients are 7. Verifying that the BM process is part of
the business planning process.
2. Helping the clients understand the 8. Developing Implementation Plan
purpose of the Information

3. Testing the Environment 9. Analyzing the Data

4. Determining Degrees of Urgency 10. .Integrating the Recommended

Actions

5. Determining the Scope & Type of 11. Taking Action

Benchmarking Needed

6. Selecting & Preparing the Team 12. Continuing Improvement

86
 ALCOA’S SIX STEPS

1. Deciding What to Benchmark

2. Planning the Benchmark Project

3. Understanding Your Own Performance

4. Studying Others

5. Learning From the Data

6. Using the Findings

87
 BENCHMARKING PURCHASING
PERFORMANCE
1. Comparing total system against that of another
Company / Division.
2. Comparing total system against that of a Competitor
3. Comparing total system against the best in another
industry
4. Comparing a specific purchasing component against
another Division.
5. Comparing a specific purchasing against another
Competitor
6. Comparing a specific purchasing against any one in
the field

88
7. Comparing firm’s paid prices against those of the
industry overall
8. Comparing Actual Budgets against Planned
Budgets.
9. Comparing Results of a Zero based Budgeting
Process.
10. Baselining good practices in each area.
11. Asking internal customers what they think of
purchasing’s performance.

… J. Carinato

89
EPILOGUE

STATEMENT OF THE ORGANISATION’S

MISSION

EXPECTATIONS OF THE CUSTOMERS

STATEMENT OF EACH FUNCTION’s -

 BROAD PURPOSES

 SPECIFIC OUTPUTS : QUALITY

COSTS

90
EPILOGUE contd...

BENCHMARKING IS NOT BLINDLY COPYING. IT

IS CREATIVE ADOPTION OF OTHERS’
SUPERIOR PRACTICES.

BRINGS ABOUT LEARNING CULTURE,

EXTERNAL FOCUS STIMULUS FOR
IMPROVEMENT, INCREASED CUSTOMER
SATISFACTION, IMPROVED BOTTOMLINE,
INCREASED MARKET SHARE, IMPROVED
FINANCIAL RESULTS … ….END

91
STRATEGIC ISSUES IN SUPPLY
CHAIN MANAGEMENT

92
STRATEGIC ISSUES IN SUPPLY CHAIN
MANAGEMENT

93
 Contents:
1.0 Global Scenario

2.0 Objectives of the Supply Chain

3.0 Supply Chain Management

4.0 Supply Chain Strategy/ ies

5.0 Barriers to MM & Root-causes

6.0 Epilogue

94
 1.0 Global Scenario
1.0 Highly Competitive Environment :
 Reduced Costs
 Increased Quality
 Improved Responsiveness & Services
 Flexibility
 Better product availability

1.1 No Business is an Island :

 It is not enough to become efficient - Effectiveness has to be
created in Suppliers, the distribution channels and all associated
activities to enable value to reach the customers.

1.2 Competition is not between individual businesses

but between groups of businesses. One supply
chain competes against another supply chain.

95
 2.0 Objectives of the Supply Chain
A well-oiled Supply Chain is expected to support
the strategic objectives of a business by adopting
the following performance objectives defined in
specific measurable parameters :

 Reduced Costs (C)

 Shorter Lead Time (T)
 Best Quality (Q)
 Flexibility (F)
 Enhanced Service (S)
 Better Product availability & reliability (R)

96
 Slack Vs Taut Supply Chain
Supply Chain should be neither too slack to
be inefficient nor too taut to break :

 Slack (inefficiency) : High Storage, delayed movement, poor

processing (under-utilization)

 Taut (Fire Fighting) : Inadequate storage, frenzied movement

and poor processing (unacceptable quality).

97
 SCM at Material & People Levels

 At Material level : Flow of materials through procurement,

manufacture, distribution, sales and consumption (disposal).

 At People level : Social entity of people, organized as structures

and systems for delivering the desired value.

Material Flow

Design Supplies Pur & Mfg. Mktg. Customer

Stores

Information Flow
98
 Definition

“The Integrated Management of all the

linkages and value-adding activities from the
supplier’s supplier to the customer’s
customer in such a way that enhanced
customer value is achieved at lower costs”.

99
 4.0 Supply Chain Strategy
Strategic Supply Chain Management is directly
related to and draws strength from the business
strategy of an organization. It is developed from
business strategy.
Five aspects of Business Strategy / Policy :
(i) Products / Services for marketing
(ii)Market Segments (geographic) of operations
(iii)
Customer Segments
(iv)Channels of Distribution (Distributors, Dealers,
Retailers)
(v) Customer Service
100
Five Elements of Supply Chain Strategy :

Sourcing
Distribution Inventory
Strategy
Strategy Strategy

Strategic Supply Chain Management

Customer Integration
Service Strategy
Strategy

Components of Strategic Supply Chain Management

101
4.1 Sourcing Strategy :
Make or Buy

Sourcing
Strategy

Mfg. Capacity
Management Management
Elements of Sourcing Strategy

102
 Three Elements of Sourcing Strategy
(i) Manufacturing Management : Traditionally, PPC
Systems were designed to maximise efficiency of
labour and utilization of machines. These are no
longer adequate.
Now, production processes have to optimize
balance between Customer Satisfaction and
Efficiency.

(ii) Make or Buy Decisions : Traditionally, factors such

as cost of inhouse manufacturing, cost of sourced
supplies, labour cost changes, overheads,
capacity, availability and transport interruptions
were considered.
103
 Now, faster deliveries, easy access for service,
repairs and replacements and customer
preferences have also to be considered.
(iii) Capacity Management : Traditionally, the decision
on plant location were based on factors like cost of
land, Govt. subsidies, cost of power, availability of
labour, sales tax concessions etc.
Now proximity to customers, costs of distribution,
supply channel infrastructure availability, access to
service facilities, access to modes of transport
network and access to I.T. have also to be
considered.

104
 4.2 Distribution Strategy
Linkage between the firm’s customers and the sources
of its products or services that the firm provides to the
market place. This decision involves consideration of
distribution costs, long term commitment to certain
types of costs associated with a channel of distribution.
Distribution Strategy

Channel Supply Chain Distribution

Selection Management Planning

Elements of Distribution Strategy

105
 Elements of Distribution Strategy
(i) Channel Selection : Choice of Channel depends on the
products or services to be marketed, volumes involved,
geographical locations, long-term policy regarding marketing
and level of customer service desired.
(ii) Supply Chain Configuration : Has a number of participants e.g.
sources of supplies, storage or stocking stations & distribution
channels till the supplies reach the end customers. Their
location has important bearing on the efficacy of supply chain
system and the business results of the organization. Supply
Chain configuration calls for determining numbers and location
of each of the

106
 participants, their role, etc. Factors such as Volume of supplies,
number of customers, geographic locations, cost of
transportation, distribution costs, level of customer delight and
vendor satisfaction are involved.

(iii) Distribution Planning : Wide variety of transport choices, faster

mode provides high level of customer satisfaction as well as
opportunities to seize business opportunities when there is a
sudden demand. Decisions whether to have own fleet or not,
costs of transportation, transportation mode, capacity, location,
routing and the schedules of distribution so that supplies reach
the destination on time; are to be taken. Decisions ensuring JIT
supplies to customers are to be taken.

107
 4.3 Inventory Strategy
This is the core of SCM. The major cost of a supply
chain, the level of customer satisfaction, the business
growth (or fall) are largely influenced by the Inventory
Strategy.
Three Elements of Inventory Strategy :
Demand
Forecasting

Inventory
Strategy

Stock Facilities Inventory

Planning Planning
108
(i) Demand Forecasting : Regular, cyclical or
seasonal demand. Demand forecasting enables
a Company to organize sourcing strategy and
stocking policies. A faulty demand forecasting
can throw supply chain haywire whereas an
accurate forecast results in smooth operations.

(ii) Inventory Planning : Fixing levels of inventory,

min/max stocks, ROLs, lead time of
procurement, order quantity etc. Inventory
Planning involves setting up of procedures for
monitoring inventories and exercising controls.
Many softwares and tools are available.

109
(iii) Stock Facilities Planning : Storage facilities,
handling equipment, proximity to rail/road
heads, closeness to distribution channels
are important.

110
 4.4 CUSTOMER SERVICE STRATEGY
The strategy defining methods and means to respond to
the needs and expectations of the customers in a manner
that maximises profitability. Companies do not sell their
products but relationships, solutions, supports and care.
Customer service has become the cutting edge and a
valuable business activity. Customer Service Strategy is
developed from three factors.
Service
Needs

Customer
Service
Strategy

Service Revenue
Cost Manage-
ment
Input for Customer Service Strategy
111
(i) Identification of Service Needs : The
exercise calls for :
 Segmentation of customers
 Identification of segments unique to the Company
 Identification of service needs relevant to each customer
segmentation / product / geographic location.

(ii) Cost of Service : The issues involved are as

to how to improve the service so as to
maximise a firm’s profitability. This involves
determination of :
 Service Costs incurred by the firm at current level of
service
 Cost of providing newly identified level of service

112
(iii) Revenue Management : The principal of
maximising profitability and growth cannot
be sacrificed. Increased customer service
also must lead to these. Service is a profit
centre.

113
 4.5 SUPPLY CHAIN INTEGRATION
STRATEGY
Traditionally, suppliers and manufacturers
operate rather independently. Information on
stocks with manufacturer, distributors, dealers,
retailers is not available. In an efficient SCM,
manufacturers, suppliers, distribution channels
and customers are linked in the form of a chain
to develop and deliver products as a single
organization of pooled skills and resources.
Information Integration
This integration can have three forms in a spirit
of partnership :
Integration Decision Integration
Strategy

Financial Integration
114
(i) Information Integration : Share confidential &
critical information, EDI, IT applications like
ERP have been successfully tried. Planning
and implementation of information systems can
help to analyze product flows, order patterns,
inventories, obsolescence, levels of production
and supply costs.

(ii) Decision Integration : Joint decisions on

inventories, distribution prices, etc. The entire
supply chain system would be behaving as if it
is a single company.
115
(iii) Financial Integration : It implies that each
of the participants has a financial stake in
operations of other participants. Suppliers
can be equity holders in the venture of
manufacturers and manufacturers extend
their financial participation to the
distribution channels.

116
 5.0 BARRIERS TO MM AND ROOT
CAUSES
The old approach was to create a new
functional silo - Materials Management. Few
companies were successful in using
multifunctional teams to effectively manage
their material flows.

People were selected and promoted based on

perceived management skills and
professional certifications rather than their
skills in directing process improvements.

117
It was rare for companies to take holistic
approaches to managing materials. Key measures
and systems were generally focused inward. Most
organizations were overly focused on their internal
operations and had inadequate focus, processes
and resources to manage supplier and customer
linkages and relationships.

A strategic approach was uncommon. Reach-out or

stretch goals were rarely put in place to generate
out-of-the-box thinking (Conventional goals yield
conventional solution).

118
Conventional solutions were widely
adopted - for example computer systems
such as MRP and MRP II. Those with
vested interests in technical solutions
fought long battles with proponents of
common-sense approaches, such as JIT
and lean manufacturing. The most
common MRP and MRP II software, for
many years, did not contain effective
means to support the processes of
purchasing and supplier management.
This is still true today in many companies. 119
Inappropriate financial information was widely
used in decision making. Considerable
outsourcing has occurred, and resources
have been eliminated. Insourcing will be
difficult. Bad decisions are hard to correct
quickly.

Very little benchmarking was done as a

means to share best materials management
practices (with the exception of systems,
which rarely were a best practice).
120
 6.0 Epilogue

Finally, SCM encompasses all activities

associated with moving goods from raw
materials through to the end user.

These include Sourcing and Procurement,

Production Scheduling, Order Processing,
Inventory Management, Transportation,
Warehousing and Customer-service.

121
Best supply chain management programmes focus on actual
customer demand. Instead of forcing into the market a
product that may not sell quickly, they react to actual
customer demand.
So they minimise the flow of raw materials, finished product
and packaging materials at every point in the pipeline. SCM
systems pull data from every step of supply chain, providing
a clear, global picture of where the enterprise is heading.
By linking SCM applications with other business systems,
companies can slash cycle time and reduce inventory. They
can also reach beyond their own corporate walls to better
connect with suppliers, distributors and end customers.

122