Description
Following initiatives have been taken towards improving the SCM in consumer durables sector, retailing, ecommerce, Build-to-order (BTO), forecasting techniques, flexible manufacturing. It also explains the distribution of Sony, Videocon and LG.
Grou p 3
COSUMER DURABLES: Durable supply chains
PART-I: WORD REPORT
1 2 3 4 5 6 7 8 9 10 AUTOMOBILE: Switching lanes to get ahead CEMENT: Travails of cement travel CONSUMER DURABLES: Durable Supply Chains FMCG: Exit brands, enter saving plans FOODS: Multiple menu for food GARMENT EXPORT: Thread an efficient supply chain PAINTS: Painting a bright future PHARMACEUTICALS: Booster dose of supply chain STEEL: Monitoring with iron hand OUTSOURCING & 3PL: Finding the right partner Mall Management: Consumption demands and trends in India Information and SCM: Zipping along the info way
?
11 12
Part 1 Consumer Durables Industry in India The Indian Consumer durables industry was valued at `15,000 crores in 2001. The industry has become very competitive in the recent years. The entry of several international players has further intensified competition with customers now being the focus. Customers now have the kind of choices that were not available in the past like a wide variety of products to choose from, e-shopping, home delivery of products etc. Appliances are being built keeping in mind the customer demand. Durable Supply Chains of the Past
Supply chain management in the consumer durables industry has been focusing on push and sell in the past. The key feature of the Supply Chains of the past are: 1. The push system was used as market was small, buying power restricted and high margin requirement of the dealers 2. Forecasting was based on historical data and was mostly inaccurate 3. Supply Chain was seen as the mere means to transport goods 4. Requirements of each model were planned in ad hoc manner and were far removed from actual market demand 5. Long Order Cycle times (up to 3 months) 6. Fragmented industry meant focus on Link Optimization rather than Chain Optimization However, things are beginning to change which is also reflected in numbers such as: > Logistics cost as a percentage of Total sales coming down by 1% > RM inventory holding days reducing at a CAGR of 1.5% for the last 5 years > FG inventory holding days been reducing at a CAGR of 1.2% for the last 5 years These facts prove that Consumer durables companies are increasingly appreciating the importance of SCM to reduce logistics costs, inventory and improve inventory turnovers when sales growth has been declining and margins shrinking. New Age Durable Supply Chains The change in competitive landscape along with other factors such as a dip in the industry growth rate, a drop in penetration levels, decreasing profitability have necessitated a chain in the Supply chain management processes for the industry. The focus has shifted from Supply Chains to Value Chains with key players identifying the prime movers of a value chain namely: Waste reduction Speed of delivery to the customer Collaboration with customers to shorten product life cycle Develop tighter value chains to avoid shortages
- Make to order replacing forecasting - Automatic replenishment of inventory at dealers Keeping in mind the above mentioned value chain drivers/prime movers, the following initiatives have been taken towards improving the SCM in consumer durables sector: 1) Retailing: The Typical distribution setup of the industry is shown in the diagram below: Manufacturer
Manufacturer’s Warehouse
Dealer’s Warehouse
Dealer Location
The key areas that manufacturers are focusing on pertaining to Retailing are: - Whether to sell to all retailers or serve only those 20% that sell 80% of the total sales? - The customers must have the whole variety before them before making a choice - Order fulfillment process must not take longer than 2-3 days - Replenishment of sold inventory at dealer showroom as well as small retailers The retailers are also a very important source of point of sales information in the Supply Chain which is helpful at all stages from forecasting to negotiating credit terms. Retailers being in the business for years have key information about things such as pattern of sales, preferred brands, price preference, delivery times etc but are often reluctant to share the same. Logistics of Order Fulfilment: Customer Orderer Call to Dealer Warehouse Stocks Availabl Yes
No
Check Stock at Central WH
Deliver Order
Impact of Organised Retail: Benefits: ? Better POS data collection ? Increased level of sales ? Lesser freight costs ? Collaborative planning Downside: ? Retailers gain power – Higher margins, lesser inventory norms and better credit norms ? Traditional players will lose out as organized retailers will offer lower prices 2) E-Commerce: Internet has become an important tool for the consumer durables industry with the companies directly interacting with their customers. The buying process has completely changed though the end delivery process is still the same – the dealer nearest to the customer delivering the final product (Virtual Delivery). Internet is also important for B2B transactions. Most consumer durables companies already have B2B portal where suppliers and dealers can log in and perform transactions like order entry, reordering, invoicing etc. An important additional feature that e-commerce provides is Order Tracking with each unit/order attached a unique number which can be easily tracked by the customer, dealer, accounts and the logistics company. Key benefits of the Virtual Delivery process are: a. Faster flow of information b. Integration of virtual and physical supply chains c. Optimization of cost d. Greater contact with the customers, better POS data collections and CRM efforts e. Reduction in finished goods inventory f. Better production planning Another segment which has benefitted from the internet boom is the online shops and exchanges. These shops provide the buyer a virtual retail environment where products of all companies are available and the buyer can choose a product to his liking. Business done through these websites has been increasing and was in the range of `10-50 crores.
3) Build-to-order (BTO) or Postponement: BTO is a production approach wherein products are built only after the customer has entered his order. BTO as an order fulfilment technique is useful for highly customized products. These products may be shipped directly to individual customers, to stores or dealers, or as a response to assemblers’ "pull signals" . All the suppliers in the chain cannot be following BTO as for a low value high volume component it does not make economic sense to follow BTO. E.g. Dell has used the BTO system to great advantage Advantages of BTO: - Reduction in finished goods inventory - Reduction in risk of obsolescence - Customer gets the product with his exact specifications - No sales discounts Disadvantages of BTO: - Susceptible to demand fluctuations - Reduced capacity utilization in times of slow demand 4) Forecasting Techniques: Consumer durables companies have moved on from the past method of forecasting demand based on historical data to new techniques like point of sale data gathering, benchmarking with another industry etc. Companies are making an effort to forecast demand that is closest to the actual demand in market. 5) Flexible Manufacturing: Production planning is being done in such a way that what’s being demanded is being produced. Earlier pre determined quantities of different models were produced and ‘pushed’ to the retailers; as a result the customer may not get the product he desired. This system also involved large finished goods inventory. With Flexible Manufacturing systems it is now possible to produce multiple products without major changes in the setup or to change order of operations. Consumer durables companies have utilized this system to manufacture models according to demand/seasonality. 6) Third party logistics (3PLs): Another innovation in the supply chain is the advent of third party logistics companies which provide services right from the back end till the final sale is made. Using 3PLs increases the overall efficiency of the SC. In India currently transportation is being outsourced but we will also likely see 3PL services in bar coding, loading, unloading, ware house planning etc.
Part 2
Sony
Sony Corporation is the electronics business unit and the parent company of the Sony Group, which is engaged in business through its eight operating segments – Consumer Products & Devices (CPD), Networked Products & Services (NPS), B2B & Disc Manufacturing (B2B & Disc), Pictures, Music, Financial Services, Sony Ericsson and All Other. These make Sony one of the most comprehensive entertainment companies in the world. CSR in Supply Chain The special feature for Sony is the implementation of CSR in its Supply chain structure. Sony approaches CSR in procurement from two perspectives Materials procurement procedures which involves creating and maintaining synergetic business partnerships with suppliers, regarded as Sony's stakeholder. This is in line with relevant regulations and internal policies. ? The second one relates to production processes and involves providing support to realize CSR from such standpoints as the environment, human rights and labor conditions. We will discuss the first perspective here as it gives the Sony supply chain an edge. In addition to the quality of the standard of the products it delivers to the consumers, Sony also ensures equally high standards throughout its production processes from such standpoints as the environment, human rights and labor conditions. In particular, as supply chains have expanded to include developing countries, this interest has broadened to encompass not only the company's own production lines, but also those of the companies that supply it with parts and materials and the companies to which it subcontracts work. While working together with other companies in the industry to develop a common framework, Sony seeks to introduce "CSR procurement," namely, CSR management programs through our supply chain that include legal compliance, employment, occupational health and safety, and environmental protection. The basic structure can be given here: ?
Sony's expectations of its suppliers include compliance with protocols, laws, regulations and social standards and an environmental program. Given the global nature of its suppliers, Sony has led the industry by introducing their own global standards for management of chemical substances, called "Management regulations for environment-related substances to be controlled which are included in parts and materials". Sony has also established the Green Partner Environmental Quality Approval Program for Sony suppliers. Sony maintains a common global quality standard for parts by purchasing electronic parts only from suppliers who have passed an audit and have been certified as Green Partners. Stakeholders’ interests have risen sharply in companies' overall responsibility for their products, including such issues as human rights, labor conditions and environmental protection of OEM/ODM companies and parts suppliers. In response to this, the Sony Supplier Code of Conduct is formed, which is based on the Electronic Industry Citizenship Coalition (EICC) Code of Conduct and is centered on the premise that suppliers are engaged in the manufacture of Sony products. According to this they should adhere to the Code and address such issues, and thus comply with Sony's standards. It is Sony's basic policy to reconsider its business relationship with the supplier in the event that an existing supplier is confirmed to have committed a major violation of the Sony Supplier Code of Conduct, or not exhibit an appropriate level of cooperation to studies and audits. In the event that a violation of the Sony Supplier Code of Conduct is reported by a third party and a violation be confirmed, Sony will ask the supplier to take corrective actions and report back on the progress. If the violation has been committed by a secondary supplier, Sony will work in cooperation with the relevant primary supplier to take corrective action.
Videocon
Videocon is an industrial conglomerate with interests all over the world and based in India. The group has 17 manufacturing sites in India and plants in China, Poland, Italy and Mexico. It is also the third largest picture tube manufacturer in the world. Videocon is one of the largest manufacturers of television and its components in India and thus has advantages of economies of scale and low cost due to indigenization. It has always been a price player and has an image of a low price brand. Due to its multi-brand strategy, it has at present multiple brands at the same price point. This has led to a state of diffused positioning for its brands. It has also led to a cannibalization of sales among these brands. It has the widest distribution network in India with more than 5000 dealers in the major cities. It also has a strong base in the semi-urban and rural markets. It is one of India's few companies to command the entire supply chain, from manufacturing glass to sand, to production of guns and yokes, and converting them into color picture tubes for sale in the market.
The mySAP system A strong distribution network is absolutely essential to compete in this industry. Not only does it guarantee a country wide reach for a company’s products but is also necessary for providing good after sales service. Videocon has implemented ERP system, which helps in integrating the manufacturing, marketing, procurement and distribution services with the corporate office. Videocon has emerged as the first company in India to have successfully implemented mySAP (ERP version 2004) across the organization. This installation combines all the futuristic modules like Enterprise Portal (EP), Business Warehousing (BW), Customer Relationship Management (CRM), and Human Capital Management (HCM) amongst others and is thus it is first of its kind in India. Videocon has spent close to Rs. 25 crs to upgrade IT systems at workplace and this installation. Videocon Group has also provided its 1500+ Sales staff with laptops and sierra cards to enable them to carry office with them always and to respond effectively to the business requirements. mySAP Germany has also categorized Videocon as the ramp-up partners for this state-of-the-art execution. This shows the growing use of IT adoption in business by the Videocon Group of Companies. It underlines how information technology is being leveraged at Videocon for effective business transformation and for consolidation of its global spread. It bears a testimony to the fundamental practice at Videocon to achieve excellence in its operational efficiencies while delivering strong return on investment to its stakeholders.
LG
The LG Corp is South Korea's second largest conglomerate that produces electronics, chemicals and telecommunications products and operates subsidiaries like LG Electronics, LG Display, LG Telecom and LG Chem in over 80 countries. It started off as Goldstar producing South Korea's first radio. Many consumer electronics were sold under the brand name GoldStar, while some other household products (not available outside South Korea) were sold under the brand name of Lucky. The Lucky brand was famous for its line of hygiene products such as soaps and Hi-Ti laundry detergents, but most associated with its Lucky and Perioe toothpaste. LG channel structure The channel structure followed by LG includes various members like dealers, X-canvas studios, LG shoppes etc. helping it reach to its millions of customers. These channel members are further aided by a network of distributors and sub dealers which help in providing the reach required to the company. It has around 12000 stock and selling points across country. Since the product line of LG is quite vast ranging from CTV’s to mobile phones the channel structure for each of the product is unique. For example GSM mobile phones do not make use of CFA’s and CTV, microwave ovens and other such items require CFA’s. (CFA- Carry and forwarding agent) It has a primary manufacturing facility at Noida; two other facilities have come up at Pune and Dehradun. Procurement of supplies for production is done by purchase department. Most of the raw materials are bought from within the country. LG services its customers through various selling points like Exclusive showrooms, Multi brand outlets. It services individual customers as well as institutional buyers. There is also an alternative channel which has its presence online where in people can place orders on its website. It has a separate channel for its spares and service business. A few points regarding the CFAs are: •The number of C/F agents are 28. •They are spread across 20 states in India. •The company dispatches the goods to C/F on consignment basis. •At the same time, these C/F agents all work on contract basis. •They get paid as per the amount they stock. Distributors The company appoints distributor for selective cities where the markets are small but require more focus and attention. Distributors are required to conduct sales and marketing on behalf of the company in these markets serving to all the required company stores. The distributor is given a margin of 10-20%.
LG Distribution Network
LG supply chain issues ? ? Delivery Schedule takes 1 day for CFA’s to service reorder within their zones. Distributor too caters to the demand in his area within 48 hours from the time of receiving the order. ? If goods have to be procured from the warehouse then it takes 8 days (avg) for the goods to arrive at the C/F or distributor and delivered to the stores. ? No inventory management system in place with the MBO’s. ? ‘LG Shoppe’ and franchisee showrooms do have a system in place to consolidate their inventory and sales with the company main office. The supply chain structure as could be seen above is not too dependent on any one of the links in the supply chain. Thus the bargaining power of each point is limited.
Part 3 Potential issues/challenges in the supply chain of consumer durables are: Upstream Side: 1. Limited Visibility: Monitoring, performance management, analytics, regulatory compliance, and comprehensive scorecards across the extended supply chain 2. Product Variety: Proliferation the product portfolio and constant innovation has impacted the ability of suppliers to effectively manage inventory and control accuracy 3. Global Sourcing: Though global sourcing has its advantages as is visible in companies like Dell, it comes with its own set of issues likes flawless customs clearance, brokerage etc 4. Investment in Technology: Concepts like RFID, e-commerce etc have necessitated greater investment in technology and training Internal Side: 1. Demand Management: The main challenge for consumer durables manufacturer is to evolve the enterprise into a demand-driven supply network, switching from a "push" method of moving product, which is based on incomplete or inaccurate demand information, to a "pull" method, which is based on quick response to real-time demand signals 2. Inventory Management: Manufacturers face the challenge of keeping up with consumer demand and taking the lead in a competitive market while maintaining reasonable inventory costs throughout the supply chain. Overcompensation for consumer demand leads to excess inventory, which means wasted goods, warehouse space, and transportation planning. Undercompensation means empty shelves and lost confidence with retailers that could impact future shelf space 3. Reducing Operating Expenses: Continued cost reduction and constant improvements in operational efficiency are paramount for a firm to gain competitive advantage. Supply chain technology can be leveraged to achieve this goal 4. Supply chain risk management: The increasing complexity of supply chains mean that there are literally hundreds of unplanned events happening every day. A firm must be equipped to deal with them in a timely and profitable way or they pose a significant risk to its competitiveness in the market 5. Production Planning: What to produce, when to produce and how much to produce is a key decision in the consumer durables industry as consumer demand and purchase pattern keeps changing 6. Choosing between ERP and best-of-breed supply chain solutions
Downstream Side: 1. Warehouse management: Required for inventory tracking and support of the customer base. The main idea is to prevent both overstocking and stockouts 2. Transportation management: Choosing the best mode of transport, minimizing expenditure ion freight and streamlining logistics of moving inventory 3. Retail: POS data collection, order replenishment management, inventory management, credit norms, with the advent of organized retail small retailers may be marginalized as the organized players can sell at lower prices 4. Customer Satisfaction: Perhaps the most important part of the supply chain, the customer was not given due importance in the past with companies selling what they manufactured (PUSH system) and not what the customer wanted. But with the size of the industry growing, the customer has also become demanding with a number of options available to choose from. Therefore, companies now have to sell/make what the customer wants (PULL) and customer satisfaction has become the prime objective
Part 4
Financial Perspective Measures
Cash to Cash Cycle Time The unit “sell price” minus material cost divided by material cost.
Goals
Cash Flow Material Value Add COGS percentage EBIT percentage Inbound Logistics Cost %
COGS divided by Total Revenue EBIT divided by Sales
Inbound Logistics Cost/Sales
Internal Business Process Perspective Goals Measures
Flexible Response Unit Cost Reduction Time Compression No. of Choices/avg response time % of SC target costs achieved SC cycle efficiency
Innovation and learning perspective Goals Measures
Information Flows Innovation Employee Training No. of shared datasets/total data sets and Speed of data sharing Product finalization point/Postponement No. of trained service engineers
Goals
Order Fill Rate
Customer Perspective Measures
No of orders / total amount ordered, multiplied by 100. The number of days (hours) from the time a shipment leaves the facility to the time it arrives at the customer's location vs. standard transit time quoted by the carrier for each traffic lane.
Transit time Backorder Customer Value No of backorders/Total orders received Customer Value Ratio
Figure 1: Balance Scorecard based on pertinent variables
Our suggestions based on the Balanced scorecard approach are: Customer Perspective i. Order fill rate is a measure that tells us about the no. of orders shipped against the total orders received. Companies must look to maintain as high an order fill rate as possible Transit time: Companies should look to minimize the transit time, ideally within hours after the customer has made the purchase decision as no customer is willing to wait 2 or 3 days to get a product delivered Back Order: Back orders are those orders which could not be fulfilled at the time of purchase and are filled up after stock renewal. In today’s age of cut throat competition companies cannot afford to have any back orders as the customer may switch to a competitor’s product
ii.
iii.
iv.
Customer Value: It is the customer’s perception of supply chain performance in terms of time, quality and flexibility relative to the cost. Intent of supply chain should be to increase the value ratio by increasing customer satisfaction or reducing cost
Finance Perspective i. Cash to cash cycle is the measure that tell the management how long it takes to convert money spent on material, labor and so on into cash in hand. Supply chains that have successfully integrated information and product flows will have faster cash to cash cycles COGS percentage has been increasing at a CAGR of 5.1% but so have the sales, therefore COGS is not a major concern for the industry, however it should be minimized EBIT as a percentage of sales should increase with economies of scale coming into play with the rising sales as well as other costs getting reduced with introduction of new value adding features along the supply chain Inbound logistics costs have come down by 1% as a percentage of total sales. It is a non value adding cost and firms must try to minimize it
ii.
iii.
iv.
Business Process Perspective i. ii. iii. No of choices relative to response time is the ratio that relates how effectively the SC is able to offer variety to its customers without lengthening the time it takes to create this variety % of SC target costs achieved can be used to ensure that process improvements in time, quality and flexibility are actually translated into actual cost reduction SC efficiency = Total value added time/total time in SC. The goal is to progress towards a SC efficiency of 1 or 100% so that non-value added time is eliminated
Innovation and Learning Perspective i. Information Flows goal can be used to encourage SC partners to create a common language for managing various processes. Info sharing is vital to the success of a SC in terms of reducing waste, avoiding duplication, cost cutting and flexible response. This measure also indicates if additional opportunities are available for sharing information ii. The product finalization point is concerned with postponement. The goal should be to push final production as close to the customer as possible to prevent inventory pile up and risk of obsolescence. To manage this process innovations have to be carried out which enable a SC to reduce time elapsed between finalization and customer delivery iii. With technological advances in the consumer durables industry and product after sales service catching up a SC needs trained service engineers to install and/or service products
doc_400825219.docx
Following initiatives have been taken towards improving the SCM in consumer durables sector, retailing, ecommerce, Build-to-order (BTO), forecasting techniques, flexible manufacturing. It also explains the distribution of Sony, Videocon and LG.
Grou p 3
COSUMER DURABLES: Durable supply chains
PART-I: WORD REPORT
1 2 3 4 5 6 7 8 9 10 AUTOMOBILE: Switching lanes to get ahead CEMENT: Travails of cement travel CONSUMER DURABLES: Durable Supply Chains FMCG: Exit brands, enter saving plans FOODS: Multiple menu for food GARMENT EXPORT: Thread an efficient supply chain PAINTS: Painting a bright future PHARMACEUTICALS: Booster dose of supply chain STEEL: Monitoring with iron hand OUTSOURCING & 3PL: Finding the right partner Mall Management: Consumption demands and trends in India Information and SCM: Zipping along the info way
?
11 12
Part 1 Consumer Durables Industry in India The Indian Consumer durables industry was valued at `15,000 crores in 2001. The industry has become very competitive in the recent years. The entry of several international players has further intensified competition with customers now being the focus. Customers now have the kind of choices that were not available in the past like a wide variety of products to choose from, e-shopping, home delivery of products etc. Appliances are being built keeping in mind the customer demand. Durable Supply Chains of the Past
Supply chain management in the consumer durables industry has been focusing on push and sell in the past. The key feature of the Supply Chains of the past are: 1. The push system was used as market was small, buying power restricted and high margin requirement of the dealers 2. Forecasting was based on historical data and was mostly inaccurate 3. Supply Chain was seen as the mere means to transport goods 4. Requirements of each model were planned in ad hoc manner and were far removed from actual market demand 5. Long Order Cycle times (up to 3 months) 6. Fragmented industry meant focus on Link Optimization rather than Chain Optimization However, things are beginning to change which is also reflected in numbers such as: > Logistics cost as a percentage of Total sales coming down by 1% > RM inventory holding days reducing at a CAGR of 1.5% for the last 5 years > FG inventory holding days been reducing at a CAGR of 1.2% for the last 5 years These facts prove that Consumer durables companies are increasingly appreciating the importance of SCM to reduce logistics costs, inventory and improve inventory turnovers when sales growth has been declining and margins shrinking. New Age Durable Supply Chains The change in competitive landscape along with other factors such as a dip in the industry growth rate, a drop in penetration levels, decreasing profitability have necessitated a chain in the Supply chain management processes for the industry. The focus has shifted from Supply Chains to Value Chains with key players identifying the prime movers of a value chain namely: Waste reduction Speed of delivery to the customer Collaboration with customers to shorten product life cycle Develop tighter value chains to avoid shortages
- Make to order replacing forecasting - Automatic replenishment of inventory at dealers Keeping in mind the above mentioned value chain drivers/prime movers, the following initiatives have been taken towards improving the SCM in consumer durables sector: 1) Retailing: The Typical distribution setup of the industry is shown in the diagram below: Manufacturer
Manufacturer’s Warehouse
Dealer’s Warehouse
Dealer Location
The key areas that manufacturers are focusing on pertaining to Retailing are: - Whether to sell to all retailers or serve only those 20% that sell 80% of the total sales? - The customers must have the whole variety before them before making a choice - Order fulfillment process must not take longer than 2-3 days - Replenishment of sold inventory at dealer showroom as well as small retailers The retailers are also a very important source of point of sales information in the Supply Chain which is helpful at all stages from forecasting to negotiating credit terms. Retailers being in the business for years have key information about things such as pattern of sales, preferred brands, price preference, delivery times etc but are often reluctant to share the same. Logistics of Order Fulfilment: Customer Orderer Call to Dealer Warehouse Stocks Availabl Yes
No
Check Stock at Central WH
Deliver Order
Impact of Organised Retail: Benefits: ? Better POS data collection ? Increased level of sales ? Lesser freight costs ? Collaborative planning Downside: ? Retailers gain power – Higher margins, lesser inventory norms and better credit norms ? Traditional players will lose out as organized retailers will offer lower prices 2) E-Commerce: Internet has become an important tool for the consumer durables industry with the companies directly interacting with their customers. The buying process has completely changed though the end delivery process is still the same – the dealer nearest to the customer delivering the final product (Virtual Delivery). Internet is also important for B2B transactions. Most consumer durables companies already have B2B portal where suppliers and dealers can log in and perform transactions like order entry, reordering, invoicing etc. An important additional feature that e-commerce provides is Order Tracking with each unit/order attached a unique number which can be easily tracked by the customer, dealer, accounts and the logistics company. Key benefits of the Virtual Delivery process are: a. Faster flow of information b. Integration of virtual and physical supply chains c. Optimization of cost d. Greater contact with the customers, better POS data collections and CRM efforts e. Reduction in finished goods inventory f. Better production planning Another segment which has benefitted from the internet boom is the online shops and exchanges. These shops provide the buyer a virtual retail environment where products of all companies are available and the buyer can choose a product to his liking. Business done through these websites has been increasing and was in the range of `10-50 crores.
3) Build-to-order (BTO) or Postponement: BTO is a production approach wherein products are built only after the customer has entered his order. BTO as an order fulfilment technique is useful for highly customized products. These products may be shipped directly to individual customers, to stores or dealers, or as a response to assemblers’ "pull signals" . All the suppliers in the chain cannot be following BTO as for a low value high volume component it does not make economic sense to follow BTO. E.g. Dell has used the BTO system to great advantage Advantages of BTO: - Reduction in finished goods inventory - Reduction in risk of obsolescence - Customer gets the product with his exact specifications - No sales discounts Disadvantages of BTO: - Susceptible to demand fluctuations - Reduced capacity utilization in times of slow demand 4) Forecasting Techniques: Consumer durables companies have moved on from the past method of forecasting demand based on historical data to new techniques like point of sale data gathering, benchmarking with another industry etc. Companies are making an effort to forecast demand that is closest to the actual demand in market. 5) Flexible Manufacturing: Production planning is being done in such a way that what’s being demanded is being produced. Earlier pre determined quantities of different models were produced and ‘pushed’ to the retailers; as a result the customer may not get the product he desired. This system also involved large finished goods inventory. With Flexible Manufacturing systems it is now possible to produce multiple products without major changes in the setup or to change order of operations. Consumer durables companies have utilized this system to manufacture models according to demand/seasonality. 6) Third party logistics (3PLs): Another innovation in the supply chain is the advent of third party logistics companies which provide services right from the back end till the final sale is made. Using 3PLs increases the overall efficiency of the SC. In India currently transportation is being outsourced but we will also likely see 3PL services in bar coding, loading, unloading, ware house planning etc.
Part 2
Sony
Sony Corporation is the electronics business unit and the parent company of the Sony Group, which is engaged in business through its eight operating segments – Consumer Products & Devices (CPD), Networked Products & Services (NPS), B2B & Disc Manufacturing (B2B & Disc), Pictures, Music, Financial Services, Sony Ericsson and All Other. These make Sony one of the most comprehensive entertainment companies in the world. CSR in Supply Chain The special feature for Sony is the implementation of CSR in its Supply chain structure. Sony approaches CSR in procurement from two perspectives Materials procurement procedures which involves creating and maintaining synergetic business partnerships with suppliers, regarded as Sony's stakeholder. This is in line with relevant regulations and internal policies. ? The second one relates to production processes and involves providing support to realize CSR from such standpoints as the environment, human rights and labor conditions. We will discuss the first perspective here as it gives the Sony supply chain an edge. In addition to the quality of the standard of the products it delivers to the consumers, Sony also ensures equally high standards throughout its production processes from such standpoints as the environment, human rights and labor conditions. In particular, as supply chains have expanded to include developing countries, this interest has broadened to encompass not only the company's own production lines, but also those of the companies that supply it with parts and materials and the companies to which it subcontracts work. While working together with other companies in the industry to develop a common framework, Sony seeks to introduce "CSR procurement," namely, CSR management programs through our supply chain that include legal compliance, employment, occupational health and safety, and environmental protection. The basic structure can be given here: ?
Sony's expectations of its suppliers include compliance with protocols, laws, regulations and social standards and an environmental program. Given the global nature of its suppliers, Sony has led the industry by introducing their own global standards for management of chemical substances, called "Management regulations for environment-related substances to be controlled which are included in parts and materials". Sony has also established the Green Partner Environmental Quality Approval Program for Sony suppliers. Sony maintains a common global quality standard for parts by purchasing electronic parts only from suppliers who have passed an audit and have been certified as Green Partners. Stakeholders’ interests have risen sharply in companies' overall responsibility for their products, including such issues as human rights, labor conditions and environmental protection of OEM/ODM companies and parts suppliers. In response to this, the Sony Supplier Code of Conduct is formed, which is based on the Electronic Industry Citizenship Coalition (EICC) Code of Conduct and is centered on the premise that suppliers are engaged in the manufacture of Sony products. According to this they should adhere to the Code and address such issues, and thus comply with Sony's standards. It is Sony's basic policy to reconsider its business relationship with the supplier in the event that an existing supplier is confirmed to have committed a major violation of the Sony Supplier Code of Conduct, or not exhibit an appropriate level of cooperation to studies and audits. In the event that a violation of the Sony Supplier Code of Conduct is reported by a third party and a violation be confirmed, Sony will ask the supplier to take corrective actions and report back on the progress. If the violation has been committed by a secondary supplier, Sony will work in cooperation with the relevant primary supplier to take corrective action.
Videocon
Videocon is an industrial conglomerate with interests all over the world and based in India. The group has 17 manufacturing sites in India and plants in China, Poland, Italy and Mexico. It is also the third largest picture tube manufacturer in the world. Videocon is one of the largest manufacturers of television and its components in India and thus has advantages of economies of scale and low cost due to indigenization. It has always been a price player and has an image of a low price brand. Due to its multi-brand strategy, it has at present multiple brands at the same price point. This has led to a state of diffused positioning for its brands. It has also led to a cannibalization of sales among these brands. It has the widest distribution network in India with more than 5000 dealers in the major cities. It also has a strong base in the semi-urban and rural markets. It is one of India's few companies to command the entire supply chain, from manufacturing glass to sand, to production of guns and yokes, and converting them into color picture tubes for sale in the market.
The mySAP system A strong distribution network is absolutely essential to compete in this industry. Not only does it guarantee a country wide reach for a company’s products but is also necessary for providing good after sales service. Videocon has implemented ERP system, which helps in integrating the manufacturing, marketing, procurement and distribution services with the corporate office. Videocon has emerged as the first company in India to have successfully implemented mySAP (ERP version 2004) across the organization. This installation combines all the futuristic modules like Enterprise Portal (EP), Business Warehousing (BW), Customer Relationship Management (CRM), and Human Capital Management (HCM) amongst others and is thus it is first of its kind in India. Videocon has spent close to Rs. 25 crs to upgrade IT systems at workplace and this installation. Videocon Group has also provided its 1500+ Sales staff with laptops and sierra cards to enable them to carry office with them always and to respond effectively to the business requirements. mySAP Germany has also categorized Videocon as the ramp-up partners for this state-of-the-art execution. This shows the growing use of IT adoption in business by the Videocon Group of Companies. It underlines how information technology is being leveraged at Videocon for effective business transformation and for consolidation of its global spread. It bears a testimony to the fundamental practice at Videocon to achieve excellence in its operational efficiencies while delivering strong return on investment to its stakeholders.
LG
The LG Corp is South Korea's second largest conglomerate that produces electronics, chemicals and telecommunications products and operates subsidiaries like LG Electronics, LG Display, LG Telecom and LG Chem in over 80 countries. It started off as Goldstar producing South Korea's first radio. Many consumer electronics were sold under the brand name GoldStar, while some other household products (not available outside South Korea) were sold under the brand name of Lucky. The Lucky brand was famous for its line of hygiene products such as soaps and Hi-Ti laundry detergents, but most associated with its Lucky and Perioe toothpaste. LG channel structure The channel structure followed by LG includes various members like dealers, X-canvas studios, LG shoppes etc. helping it reach to its millions of customers. These channel members are further aided by a network of distributors and sub dealers which help in providing the reach required to the company. It has around 12000 stock and selling points across country. Since the product line of LG is quite vast ranging from CTV’s to mobile phones the channel structure for each of the product is unique. For example GSM mobile phones do not make use of CFA’s and CTV, microwave ovens and other such items require CFA’s. (CFA- Carry and forwarding agent) It has a primary manufacturing facility at Noida; two other facilities have come up at Pune and Dehradun. Procurement of supplies for production is done by purchase department. Most of the raw materials are bought from within the country. LG services its customers through various selling points like Exclusive showrooms, Multi brand outlets. It services individual customers as well as institutional buyers. There is also an alternative channel which has its presence online where in people can place orders on its website. It has a separate channel for its spares and service business. A few points regarding the CFAs are: •The number of C/F agents are 28. •They are spread across 20 states in India. •The company dispatches the goods to C/F on consignment basis. •At the same time, these C/F agents all work on contract basis. •They get paid as per the amount they stock. Distributors The company appoints distributor for selective cities where the markets are small but require more focus and attention. Distributors are required to conduct sales and marketing on behalf of the company in these markets serving to all the required company stores. The distributor is given a margin of 10-20%.
LG Distribution Network
LG supply chain issues ? ? Delivery Schedule takes 1 day for CFA’s to service reorder within their zones. Distributor too caters to the demand in his area within 48 hours from the time of receiving the order. ? If goods have to be procured from the warehouse then it takes 8 days (avg) for the goods to arrive at the C/F or distributor and delivered to the stores. ? No inventory management system in place with the MBO’s. ? ‘LG Shoppe’ and franchisee showrooms do have a system in place to consolidate their inventory and sales with the company main office. The supply chain structure as could be seen above is not too dependent on any one of the links in the supply chain. Thus the bargaining power of each point is limited.
Part 3 Potential issues/challenges in the supply chain of consumer durables are: Upstream Side: 1. Limited Visibility: Monitoring, performance management, analytics, regulatory compliance, and comprehensive scorecards across the extended supply chain 2. Product Variety: Proliferation the product portfolio and constant innovation has impacted the ability of suppliers to effectively manage inventory and control accuracy 3. Global Sourcing: Though global sourcing has its advantages as is visible in companies like Dell, it comes with its own set of issues likes flawless customs clearance, brokerage etc 4. Investment in Technology: Concepts like RFID, e-commerce etc have necessitated greater investment in technology and training Internal Side: 1. Demand Management: The main challenge for consumer durables manufacturer is to evolve the enterprise into a demand-driven supply network, switching from a "push" method of moving product, which is based on incomplete or inaccurate demand information, to a "pull" method, which is based on quick response to real-time demand signals 2. Inventory Management: Manufacturers face the challenge of keeping up with consumer demand and taking the lead in a competitive market while maintaining reasonable inventory costs throughout the supply chain. Overcompensation for consumer demand leads to excess inventory, which means wasted goods, warehouse space, and transportation planning. Undercompensation means empty shelves and lost confidence with retailers that could impact future shelf space 3. Reducing Operating Expenses: Continued cost reduction and constant improvements in operational efficiency are paramount for a firm to gain competitive advantage. Supply chain technology can be leveraged to achieve this goal 4. Supply chain risk management: The increasing complexity of supply chains mean that there are literally hundreds of unplanned events happening every day. A firm must be equipped to deal with them in a timely and profitable way or they pose a significant risk to its competitiveness in the market 5. Production Planning: What to produce, when to produce and how much to produce is a key decision in the consumer durables industry as consumer demand and purchase pattern keeps changing 6. Choosing between ERP and best-of-breed supply chain solutions
Downstream Side: 1. Warehouse management: Required for inventory tracking and support of the customer base. The main idea is to prevent both overstocking and stockouts 2. Transportation management: Choosing the best mode of transport, minimizing expenditure ion freight and streamlining logistics of moving inventory 3. Retail: POS data collection, order replenishment management, inventory management, credit norms, with the advent of organized retail small retailers may be marginalized as the organized players can sell at lower prices 4. Customer Satisfaction: Perhaps the most important part of the supply chain, the customer was not given due importance in the past with companies selling what they manufactured (PUSH system) and not what the customer wanted. But with the size of the industry growing, the customer has also become demanding with a number of options available to choose from. Therefore, companies now have to sell/make what the customer wants (PULL) and customer satisfaction has become the prime objective
Part 4
Financial Perspective Measures
Cash to Cash Cycle Time The unit “sell price” minus material cost divided by material cost.
Goals
Cash Flow Material Value Add COGS percentage EBIT percentage Inbound Logistics Cost %
COGS divided by Total Revenue EBIT divided by Sales
Inbound Logistics Cost/Sales
Internal Business Process Perspective Goals Measures
Flexible Response Unit Cost Reduction Time Compression No. of Choices/avg response time % of SC target costs achieved SC cycle efficiency
Innovation and learning perspective Goals Measures
Information Flows Innovation Employee Training No. of shared datasets/total data sets and Speed of data sharing Product finalization point/Postponement No. of trained service engineers
Goals
Order Fill Rate
Customer Perspective Measures
No of orders / total amount ordered, multiplied by 100. The number of days (hours) from the time a shipment leaves the facility to the time it arrives at the customer's location vs. standard transit time quoted by the carrier for each traffic lane.
Transit time Backorder Customer Value No of backorders/Total orders received Customer Value Ratio
Figure 1: Balance Scorecard based on pertinent variables
Our suggestions based on the Balanced scorecard approach are: Customer Perspective i. Order fill rate is a measure that tells us about the no. of orders shipped against the total orders received. Companies must look to maintain as high an order fill rate as possible Transit time: Companies should look to minimize the transit time, ideally within hours after the customer has made the purchase decision as no customer is willing to wait 2 or 3 days to get a product delivered Back Order: Back orders are those orders which could not be fulfilled at the time of purchase and are filled up after stock renewal. In today’s age of cut throat competition companies cannot afford to have any back orders as the customer may switch to a competitor’s product
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Customer Value: It is the customer’s perception of supply chain performance in terms of time, quality and flexibility relative to the cost. Intent of supply chain should be to increase the value ratio by increasing customer satisfaction or reducing cost
Finance Perspective i. Cash to cash cycle is the measure that tell the management how long it takes to convert money spent on material, labor and so on into cash in hand. Supply chains that have successfully integrated information and product flows will have faster cash to cash cycles COGS percentage has been increasing at a CAGR of 5.1% but so have the sales, therefore COGS is not a major concern for the industry, however it should be minimized EBIT as a percentage of sales should increase with economies of scale coming into play with the rising sales as well as other costs getting reduced with introduction of new value adding features along the supply chain Inbound logistics costs have come down by 1% as a percentage of total sales. It is a non value adding cost and firms must try to minimize it
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Business Process Perspective i. ii. iii. No of choices relative to response time is the ratio that relates how effectively the SC is able to offer variety to its customers without lengthening the time it takes to create this variety % of SC target costs achieved can be used to ensure that process improvements in time, quality and flexibility are actually translated into actual cost reduction SC efficiency = Total value added time/total time in SC. The goal is to progress towards a SC efficiency of 1 or 100% so that non-value added time is eliminated
Innovation and Learning Perspective i. Information Flows goal can be used to encourage SC partners to create a common language for managing various processes. Info sharing is vital to the success of a SC in terms of reducing waste, avoiding duplication, cost cutting and flexible response. This measure also indicates if additional opportunities are available for sharing information ii. The product finalization point is concerned with postponement. The goal should be to push final production as close to the customer as possible to prevent inventory pile up and risk of obsolescence. To manage this process innovations have to be carried out which enable a SC to reduce time elapsed between finalization and customer delivery iii. With technological advances in the consumer durables industry and product after sales service catching up a SC needs trained service engineers to install and/or service products
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