Case Game: The Case Of Supply-Chain Management

CASE GAME
The Case Of Supply-Chain Management
Contd.

THE DISCUSSION

NITIN AGARWAL
Professor, IIM-Indore

Liberalisation has made Indian customers conscious of cost, quality, and service. It has also intensified its competition. Refrigerator manufacturers have to provide a wide variety of products to cater to the different needs of customers. This increases costs. But prices can't be increased because of competitive pressures. Therefore, producers have to continuously find ways to cut costs and improve services merely in order to stay in business. Supply-Chain Management (SCM) techniques have helped many businesses achieve these contradictory objectives. Towards this end, Total should look at its suppliers, primary dealers, and retail outlets in totality and work with them as partners to deliver maximum value for money to its customers.

To ensure high quality, Total should adopt lean manufacturing practices and build systems in partnership with the vendors so that quality is built into the product, and not just checked. To reduce costs, Total should ensure more frequent deliveries from the suppliers. It should involve key suppliers at the planning stages of the product development.

Total should also outsource what it cannot do efficiently. These changes require a long-term effort on the part of Kumar and his team as trust and partnerships have to be built with its numerous suppliers over a period of time.

Similarly, on the downstream side, Total should work with its dealers and retailers to reduce channel inventories while simultaneously increasing customer satisfaction in terms of the availability of its numerous products and services. Total has to achieve this by delivering to its primary dealers more frequently and keeping a close watch on the latest market information. The extra costs of frequent deliveries may be compensated by better logistics management, which may take the form of reduced inventories, better routing of trucks, use of return loads from other sources, and partnerships with other producers. Total should, therefore, strive to achieve the best service standards by working with its channel partners. The monitoring of the SCM initiative should be done by looking at the total cost at the customer end and the service provided to them, as well as the resulting satisfaction.

If Total Industries puts these measures in place in an on-going manner, rather than as a one-time gimmick, it will stay competitive in the marketplace. It will also find that its other problems like working capital management are addressed in the process, thanks due to reduced inventories and better financial flows.

VIKAS C. SINHA
Consultant, Tata Strategic Mgmt Group

The top management of Total has correctly identified SCM as a solution to the twin problems of low margins and low demand growth. SCM would provide a cost advantage and also enable Total to have an enhanced relationship with its stakeholders-vendors and channel partners. While the strategic vision for the refrigerator business seems to be in place, it has to be translated into specific operational goals.

SCM can provide various benefits to the organisation: improved forecasting; better production and inventory planning; reduction in procurement, production and logistics costs; increase in asset utilisation; faster time to market, and enhanced customer service. Based on industry dynamics and product-market strategies, organisations need to choose the most appropriate supply-chain structure. For instance, Total would want to have a physically-efficient supply chain process for the company's refrigerator business. This would mean meeting demand at a lowest cost with a high asset turnover and short lead times. Such goals are best set through a workshop that involves senior and middle management from various functions of the organisation.

Total would be well advised to choose one or two initiatives for pilot implementation-initiatives that can offer maximum benefits to the company and are easily implemented. A successful pilot project will not only convince Total's stakeholders about the utility of SCM, but also help test various assumptions.

Vendor performance evaluation and capability development, for instance, could be Total's pilot initiative. It is important to classify vendors-using parameters such as cost (as a percentage of total), criticality of component, quality, and supply exclusivity. Total can, and should, adopt different policies and performance metrics for each category of vendor. The vendor development initiative should result in improvement in production planning and reduction in component inventories and cycle times, apart from reduction in procurement cost.

Any SCM initiative requires strong infotech support. This is an area where Total is likely to face difficulties due to the absence of economical SCM solutions for medium-size Indian companies. An option that is just emerging could be to outsource the SCM system to an Application Services Provider (ASP). This drastically reduces implementation time-and-cost.

Total should develop an implementation plan laying down the milestones that are to be achieved at each stage of the project. The SCM initiative needs to be reviewed periodically by the top management with regard to the achievement of targets and mid-course corrections. This team would also be responsible for managing issues related to change in workflow and processes, shifts in responsibilities and possible redundancies.

G. SUNDERRAMAN
V-P (Materials & Logistics), Godrej-GE Appliances

SCM has to be viewed from multiple perspectives. It has an operational perspective, a strategic viewpoint, and an infotech dimension. Companies often take some combination of these perspectives and draw up plans. This is what Total is attempting to do. While the implementation of such plans helps get better results, these are not competitively sustainable and lasting. Being in the durables and white-goods industry, Total needs to enhance the scope of its detailing to cover service delivery, order execution, collections and information, and control flows across the supply chain.

In this operational sense, Total has got the scope of its SCM initiative right. However, beyond defining the scope, Total is not clear on how these improvements are to be achieved. Structured process improvement and design techniques like Six Sigma could help the organisation drive this change effectively.

Total seems to have a cost-advantage, but its competitiveness will have to come from being superior in every element of the supply chain through techniques such as Six Sigma. This will make the company the best.

Strategically, the company needs to be significantly better than the competition along one or two dimensions. Dimensions, that today serve as constraints in the industry. Once identified, the other elements of the supply chain need to be engineered to integrate with the identified differentiator to maximise the throughput and competitive advantage. Only then will the advantage of an efficient supply chain translate into significant growth and profitability by creating high throughput.

Total does not seem to have carried out such an analysis. But from the context of the case, it is apparent that the constraints are in the market and, therefore, the market end of the supply chain like distribution, logistics and product introduction processes could throw up opportunities for the company to acquire a competitive edge.

By limiting the scope of SCM to refrigerators, Total is missing out on the advantages of the cross business integration of supply chain. In fact, Total seems to be complacent on the supply side and does not see the threat of suppliers turning to more lucrative businesses in the auto industry or even switchgears. It is important to remember that more than firm to firm, it is industry vis-à-vis industry competition that can impact the sustainability of Total's advantage.