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Convenors Message

OPUS means a musical composition with the whole gamut of musical notes reso-

nating in harmony with each other. Slightest dissonance in a single tone can render

the entire composition in discords. A similar analogy is applicable to the entire sup-

ply chain where every entity contributes to the functioning and completeness of the

system. Hence, harmonious relationships between the various entities of the supply

chain are of supreme importance for its efficiency and effectiveness.

Traditionally, the word chain has a connotation of restraint or control. As a result,

we see the supply chain becoming ineffective and often failing because of opportun-

istic and exploitative tactics of the power brokers. Today, supply chains are complex

and there is a mutual need for interdependence and hence building relationships is

becoming increasingly important. Progress can only be achieved through a paradigm shift i.e. evolving

from the control philosophy to a collaborative philosophy seeking mutual sustainability and prosper-

ity. Only then will we be able to capture the true essence of the supply chain management.

At NITIE, it has been our sincere effort to explore the vast domain of supply chain management and to

mutual sharing of knowledge with industry and the academia. Propagating this tradition passionately

and descriptively, we collaborate with the thought leaders in the industries, faculty across the globe

and with the students from various reputed institutes to create and develop new knowledge, skills

and capabilities on the subject.

Chain-to-Excellence (C2X), a student initiated SCM Interest Group in NITIE, strives to bring together all

the stakeholders and enables the creation and dissemination of knowledge across supply chain com-

munity. The publication OPUS is an initiative of the students of NITIE and intends to be a reference

for students in the field of supply chain and as a case guide for industry problems. I am certain that

OPUS will gradually build up to be a fabulous source of knowledge and a timely herald of news and

happenings in the world of supply chain management.

It gives me great pleasure to be associated with such an undertaking and I wish Team C2X, the stu-

dent initiators of OPUS, all the very best for all their future endeavors. I congratulate the efforts be-

hind this creation and wish all the readers a great learning experience!

Prof. Harsh V. BhasinConvener, OPUS

NITIE, Mumbai

Prof. Harsh V.

Bhasin

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Government policy changes, globalization, tax reforms, growth of rural markets, new technologies,

stiff competition and rising customer expectations have made SCM all the more dynamic. Due to

dramatic increase in choices and brand awareness, the customer is demanding more and better every-

day. But to what extent should customers be pampered is a key challenge for every company. Some

companies like Flipkart etc. are even being considered as being too customer-centric to sustain. How

to reach inaccessible markets with their huge spread efficiently with the current poor infrastructure?

How to choose the right technology that fits ones business model? How to adapt to new government

policies like GST? These and many more questions have become crucial for every business in manu-

facturing and services.

Companies have to keep changing fast to adapt and improve every day. They need to create a culture

of driving positive change from the grass-root level of the organization and empower people to do

that. Supply chains have to reach to the bottom of the pyramid for not only social cause but also for

good business. It has been observed that a small saving in supply chain and operations make a bigger

impact in total profits of the company.

All this speaks amply loud that no company can neglect their supply chain and operations under the

law of the survival of the fittest. With new business models, technology and lean/six-sigma manage-

ment, almost every company is pushed hard to innovate, sustain and prosper.

With all these curiosity to explore further, C2X (supply chain interest group of NITIE) has taken this

initiative. This is the first issue of OPUS which has become possible with the efforts from industry

experts, professors and students of NITIE. With OPUS we commit to keep reader updated with latest

trends, issues, advice and foresight on SCM. We invite suggestions, views and requests to bring the

best to you. You can write to us at nitie.c2x@gmail.com

Editor, OPUS

Team C2X

The EDITPage

mailto:nitie.c2x@gmail.commailto:nitie.c2x@gmail.commailto:nitie.c2x@gmail.com

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Contents

Operations at Non-Government Organiza-tions: A Human Value Chain

Page - 1

Flexibility- A strategic pre-requisite inGlobal Supply Chain

Page - 4

Supply Chain in Flower Industry

Page - 6

Mantra to Successful Retail

Page - 9

Personality of the Issue

Page - 13

Hall of Fame

Page - 12

Trivia

Page - 3

Crossword

Page - 14

News CornerFDI in Retail

Page - 15

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Operations at Non-Government Organiza-

tions: A Human Value ChainBiswarup Saha & Anjali Patil (IIM Kozhikode)

Non-Government Organizations (NGOs) have emergedas powerful organizations, which focus on a variety ofkey issues. Their common objective is to bring aboutchanges for a better world. It is estimated that in the year2009, India had 3.3 million NGOs, i.e. one NGO forevery 400 people. It is interesting to understand how theNGOs manage their supply of various relief goods andother services to the target recipients

NGO Supply Chain

NGOs undertake two primary activities: sourcing and

distribution. Unlike in other business firms, these activi-

ies are done in-house. As we can see from the figures

below, manufacturers outsource the activities of raw ma-

erial supply and finished goods distribution to the out-

side agencies. As a result of the in-house nature of these

activities, the NGO faces a number of supply chain chal-

enges.

NGOs do not have adequate number of regularemployees but mainly rely on volunteers, whoseavailability is not permanent/ predetermined

Coordinating between volunteers is a challenge

Sourcing is done from a large number of individ-ual donors

Direct distribution to a large number of recipientsis challenging.

There is constant demand-supply mismatch.

Lack of profit motive

Lack of command and control structure

From the above lists, we can conclude that one problemleads to another. Hence, identifying the main cause ofthe problems is of utmost importance.

Constructing a causal loop model for the problem (Figure

2, next page), it is understood that the human contribu-

ion to the supply chain is the major bottleneck. In such a

case, it would be best to look at the supply chain as a

human value chain.

Human Value Chain

A supply chains performance can be measured by the

strength of the relationship between the different stake-holders. Considering the importance of human resource

n a NGO supply chain, relationships become an impera-

ive parameter to judge the effectiveness and efficiency

of the supply chain. A lot of research has been done in

these areas. In their 2010 paper, Cao and others intro-

duced the concept of supply chain collaboration of

seven inter-related factors are a) Information sharing b)

Goal congruence c) Decision synchronization d) Incen-

tive alignment e) Resource sharing f) Collaborative

communication and g) Joint knowledge creation.

These factors are critical because of the human nature.

These factors are not only absolutely vital for the func-tioning of a commercial supply chain and but they are

also equally important for a human supply chain. Based

on these factors, we propose a model for operating

NGOs for better results.

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SolarCluster Model of NGO operations

Assumptions:1) Individual NGOs are willing to cooperate and col-laborate with other NGOs2) Every NGO has a certain distinctiveness - what iscommercially called as the core competence

3) There is absolute transparency in the operations ofthe NGOs4) All the NGOs have a common goal sustainabledevelopment5) NGOs around the world can be broadly classifiedas:

Operational NGO Support NGO Networking NGO

Funding NGO

Our model is based on coordination at three levels:local, regional and national/international. The frame-work for coordination is shown in Figure -3.

Local Level CoordinationOperational NGOs, which generally work at grass-root lev-

els, form clusters at the local level. The NGOs may have

different means but have similar goals. By forming such

clusters they will not only be complementing each others

work, but also be able to share the scarce resources.

Regional Level Coordination

Support NGOs will operate predominantly at the regional

evel. However, they will share their expertise with local

NGOs. They may provide logistic help and encouragemore volunteers to join the local NGOs. They may also

conduct short training courses for the volunteers and em-

ployees of the local NGOs.

Network NGOs will provide a platform for NGOs to dis-

cuss best practices and share insight in their line of work.

Networking also broadens the scope of each NGO. They

will primarily facilitate technology dissemination.

National/International Level CoordinationAvailability of funds has always been one of the hin-

drances for the operations at a NGO. Funding NGOs will

dedicate themselves to sourcing funds from the corporate

hrough CSR activities or donations. They will also try to

exploit the funds made available by various government

Uncertain Volunteering

Problem in sourcing

material

Problem in

distributing

material

Demand-

Supply

mismatch

+ +

+

+

Figure 2Causal loop model, NGO supply chain problem

Operational Support Network Funding

LOCAL REGIONAL NATIONAL

Figure 3 - Framework of coordination for NGOs

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3

The world's second-largest restaurant chain, McDonald's is soon going to open its first vege-

tarian only outlet at the foothills of Vaishnav Devi, Katara- Jammu. Dominos and Subways

already have started few vegetarian only outlets in North India.

Samsung has been one of the largest component suppliers to Apple. Aftermath of global pat-ent battle, Apple has decided to cut down its dependency on Samsung for the supply of

memory chips and displays. It is evaluating other available options like Toshiba, SK Hynix

and Elpida Memory.

More than 350 Global 2000 companies rely on IBM EMPTORIS for its strategic spend, sup-

ply and contract management solutions. The solutions are consistently recognized by leading

independent analyst firms as the most comprehensive and tested strategic supply management

solutions on the market

Gati Ltd is planning to rope in a strategic partner in its shipping division, which was hived off

into a separate subsidiary in March. The company is also planning to set up a pan-India cold

chain network. As part of the restructuring plan, Gati has moved its core business to Gati-

Kintetsu Pvt Ltd.

schemes. These funds can then be channelled to the opera-

ional NGOs.

Some advantages of the above models are:

A) Each NGO has a specific role in the model. Hencethey can specialize in their roles which will increase

operational performance.B) Resource sharing at the different levels is a boon for

all the NGOs.C) Such an operation will create joint knowledge,

which can be leveraged upon by other NGOs.D) Sourcing of funds will be streamlined, and hence the

operations will not be bottlenecked by the lack offunds.

Conclusion

NGOs are generally development and growth enhancers in

a community. However, when their operations are ineffec-

ive and inefficient, they cannot realize their objective.

NGOs, should build on the human behavior of coordina-

ion, and leverage this to achieve the societal goal of sus-

ainable development. We hope that this model of coop-

eration in operations will improve the performance of the

NGOs.

References:

1) McLachlin R and Larson P. D. (2011), Buildinghumanitarian supply chain relationships: lessons fromleading practitioners, Journal of Humanitarian Logis-tics and Supply Chain Management, Vol. 1 No. 1, pp3249

2) Jahre M. and Leif-Magnus J. (2010), Coordinationin humanitarian logistics through clusters, Interna-tional Journal of Physical Distribution and Logistics

Management, Vol. 40 No. 89,pp 667674

3) Adivar B., Atan T., Oflac B. S. and Orten T(2010), Improving social welfare chain using optimal

planning model, Supply Chain Management: An Inter-

national Journal, Vol. 15 No. 4, pp 290305

4) Tatham P. H. and Pettit S. (2010), Transforminghumanitarian logistics: the journey to supply networkmanagement,International Journal of Physical Distri-bution and Logistics Management, Vol. 40 No. 89, pp609622

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Flexibility- A strategic pre-requisite in Global

Supply ChainMohit Talwar & Kumar Anubhav (NITIE)

Globalisation has created a world without boundaries.

The new business environment is characterised by in-

formed customers, customized products, short product

ife cycle and short lead-time. These factors have led to

fierce competition in global operations of manufacturing

and logistics.

The impact of failure of one entity in the supply chain

can lead to a number of entities closing down and in

some instances the whole supply chain shuts down. Re-

cent events like hurricane in New Orleans or earthquakes

n Japan have demonstrated that risk events are inevitable

and that they are even more likely to affect todays sup-

ply chain with their increasing global stretch and com-

plexity. One such example is a fire at a single source sup-

plier for Ericsson, which led to loss of sales of $400 mil-

ion, culminating in Ericssons exit from that part of busi-

ness. Even political problems can bring about supply

chain disruptions, like an agreement between EU andChina on trade limits stalled delivery of 80mn pack of

clothing which were ordered well before the agreement

was enforced. Still, some companies appear to be able to

weather such events more effectively than others to come

o a state of normality from where they can operate. The

apparent ability of some supply chains to recover more

effectively from others has proved supply chain flexibil-

ty to be a strategic weapon.

Flexibility refers to the maintenance of the customer ser-vice levels by adapting to disturbances in supply and

sudden changes in demand. Flexibility measures thecapabilities of promptness and the degree to which afirm can meet the changes required in its supply chainspeed, destinations and volumes. Global supply chaincategorizes the entire supply chain into five flexibility

perspectives - product development flexibility, manu-facturing flexibility, sourcing flexibility, logistics flexi-

bility and information systems flexibility. Researchersalso classify flexibility as range flexibility and responseflexibility. Range flexibility is concerned with the ex-tent to which the operations can be changed.

Managing Flexibility

Certain Risk management strategies are used by global

supply chain operators to ensure smooth functioning

and faster recovery during turbulent times.These strate-

gies can be divided into three major categories such as

Product modularity, Supply chain practices and Supply

chain structure.

Product Modularity

Postponement includes delaying the actual packaging,

assembly, labelling and manufacturing of resources to

maintain flexibility in the supply chain. Form postpone-

ment refers to delayed customization whereas time

postponement refers to movement of goods only after

consumer orders are received. However, this strategy

involves a substantial investment in terms of under-

standing product design for Form postponement and

coordinating with suppliers and customers in Timepostponement. There is always a trade off between Cost

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deliver cars at a short notice. Figure below shows a rela-

tionship between flexibility and cost dimensions in op-

eration strategy. There are two options left to an organi-

zation to handle situation of increased cost. One is to

pass cost to customers as a premium. Generally, as flexi-

bility increases, the perceived value of the product also

increases and customers do not complain about paying a

premium for flexibility. Other option is to develop sys-

tems to overcome such trade-off obstacles in comparison

to those of their competitors. With the advent of sophis-

ticated manufacturing philosophies and technologies, it

has become possible to pursue this option. The smart

choice for any company is to map its business model

with suitable flexibility criterion.

of flexibility and Cost of Postponement, but with increas-

ng attention to mass customization and agile operations,

organization now days are more interested in postpone-

ment.

Supply chain practices

Hedging is a supply side risk management strategy thatkeeps an organization flexible to serve during currencyfluctuations or a natural disaster. Hedging is undertaken byhaving a globally dispersed portfolio of suppliers, thus cre-ating multiple options for decision variables, that providesprotection against risk of quality, quantity, disruption,price, variability in performance, and opportunism.

Selective risks is speculating demand to make productavailable in advance. By predicting the number of the fin-shed goods at the earliest point, it is possible to gain

economies of scale in production, procurement, and trans-portation, as well as lead to reduction in sorting costs.

Supply Chain structure

Integration increases the ability of a member to controlprocesses, systems, methods and decisions. Toyota wasfirst company that introduced flexibility in its entire busi-ness system. Toyotas lean philosophy incorporated sup-

pliers into their production program, ensuring better ex-change of information improving the quality level of prod-

ucts and services to their customers. Currently, severalautomobile brands clearly recognize the strength of lean

hinking in relation to increase flexibility in their supply

chain activities.

Disintegration helps an organization to respond easily to

environmental changes. The firms are going for outsourc-

ng of non-core activities while focusing on core compe-

encies. Outsourcing firms customize themselves with

growing and changing needs of markets hence creating

flexibility for their customers. A knowledgeable third-partyprovider with global expertise that can offer network de-

sign and optimization, primary and secondary packaging

support, campus-based warehouse and transportation solu-

ions, labour management, real estate services, regional

expertise, and collaboration opportunities will be equipped

o deliver the service, flexibility and value needed to re-

main competitive in any market.

The Cost-Flexibility Trade off

None of these strategies ensure full flexibility and opera-

ional efficiency. Consider a car manufacturer which uses

postponement strategy to manage global operations. It has

o incur an additional cost of having either an assembling

plant at the client side or a faster transportation system to

References:

1) Operations Management: Theory and Practice By B.Mahadevan

2) Supply chain resilience in the global financial crisis:an empirical study By Uta Juttner and Stan Maklan(Cranfield School of Management, Cranfield University,Cranfield, UK)

3) Supply strategies for build-to-order: managing global

auto operations By Joe Miemczyk (Audencia NantesSchool of Management, Nantes, France) & MickeyHoward (School of Management, University of Bath,Bath, UK)

4) Flexibility in global supply chain: modeling the en-ablers By Pravin Kumar, Ravi Shankar and Surendra S.Yadav (Department of Management Studies, Indian In-stitute of Technology Delhi)

5) Global supply chain risk management strategies By

Ila Manuj (Department of Marketing and Logistics, Uni-versity of North Texas, Denton,Texas, USA, and) andJohn T. Mentzer (The University of Tennessee, Knox-ville, Tennessee, USA)

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Supply chain in Flower IndustryKamal Nayan Srivastav (IIM Indore)

Introduction:

Flowers, which began as a seasonal business in a nursery,oday have developed into a global floriculture industry.

Floriculture industry can be defined as cultivation/ pro-duction and marketing of a wide variety of plants andplanting material - starting from parental products likeplants to end products like cut flowers. Its product-portfolio mainly consists of cut flowers, pot plants, cutfoliage, seed bulbs, tubers, rooted cuttings and driedflowers or leaves. Some internationally traded cut flow-

ers are Rose, Carnation, Chrysanthemum, Dahlia, Gar-gera, Garbera, Gladiolus, Gypsophila, Liastris, Nerine,Orchids, Poinsettia, Archilea, Anthurium, Tulip and Lil-es. The most traded flower in the international market is

Rose.

Flowers are generally grown in massive poly-houses con-ditioned for faster and quality growth of plants. Flowersare generally cut while in bud stage and are sprinkledwith chemicals like vinegar to delay the flower decay.Chemicals are also used to keep flowers disease free ando reduce thorns in flowers like roses. Cut flowers need to

be refrigerated at 330F-410F immediately after being cut.Apart from refrigeration, other cost drivers in this indus-ry include facilitation of artificial sunlight in form of

1300 watt bulbs and transportation by flights/ships.

Floriculture as an industry has an immense potential forgenerating self-employment among farmers and earninghighly needed foreign exchange. It has demonstratedconstant annual growth of 6-9% before 2008, and its cur-rent turnover worldwide is about 30 billion year sur-passing the entire music industry.

The main components of supply chain are:

Producers

n the Western markets, producers sell their products di-rectly through wholesale markets while in countries likeJapan & the Netherlands, selling is mainly through auc-ions. Some producers also sell their produce to the retailraders. However, direct selling is the most popular

among the producers.

Auctions

Auctions are sales organizations where producers try toobtain the highest possible price for their products.

The Mediating Agency

The mediating agency is an outlet that is used by pro-

ducers and traders to guarantee sales and to cater to

wishes and needs of customers through contracts.

Wholesale

In countries that do not have auctions, flowers are sold

through wholesale and retail trade. The gross profit

margins are in the range of 10-15% for commissioned

agents and approximately 15% for other wholesalers.

The different forms of wholesalers are:

Breeder/Wholesaler

Domestic Wholesaler

Cash and Carry

The Flower Supply Chain

Agents

Retailer

Local/ Purchase Organiza-

IMPORTED FLOWERS DOMESTIC PRODUC-TION

Auctions

Exporters Wholesalers

Bundling Station

DOMESTICPRODUCTION

IMPORTEDFLOWERS

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They are:

USA

European Union and Russia

Japan

In India, the existence of variety in agro-climatic zones

lend it a unique position to grow a large number offlowers including temperate flowers at high altitudestates. According to India's Agricultural and ProcessedFood Products Export Development Authority(APEDA), India currently produces 2,00,000 tons ofloose flowers and 500 million tons of cut flowers

In India, the consumption of flowers is much higher inthe southern states than in the northern. While the ma-

jor demand driving cities include Mumbai, Pune, Ban-galore, Chennai, Hyderabad, Delhi, Chandigarh,

Lucknow and Calcutta, the flower producing states in-clude Odisha, J&K, Punjab, Andhra Pradesh, Megha-laya and Tamil Nadu. Karnataka is the leader in flori-culture, accounting for 75% of India's total flower pro-duction.

Six Agri-Export Zones have been set up in the states ofSikkim, Tamil Nadu, Uttaranchal, Karnataka and Ma-harashtra. To facilitate exports, APEDA has set up coldstorage and cargo handling facilities at the key airportsof New Delhi, Mumbai, Hyderabad, Bangalore, Chen-

nai, Trivandrum and Cochin. Flower Auction Centershave been set up in Bangalore, Mumbai, Noida, andKolkata for better price discovery for a variety of flow-ers, both for export and domestic markets.

Key issues in Floriculture supply chain:

The main criticality associated with floriculture supplychain is the perishability of flowers which demandstechnology to delay their decay and keep them freshwithout any bruises or torn petals. This perishabilityaggravates during transportation. Research shows thatheat generated during transportation decreases vase-lifeof flowers by increasing respiration rate of flowers andalso enhances negative gravio-tropic bending of neck of

Exporter

Commission agent/importer

Logistics

Cut flowers and plants are perishable products. Cut flowershave a higher priority for sale than plants on the same day

of purchase. They are kept fresh by storing in water, cool-ng of storage rooms and means of transport, fast and effi-

cient delivery and proper packaging.

Retail Trade

The consumer can choose from 4 types of retailers:

Florist Supermarkets Street Vendors

Garden Centres

Consumers

Consumers can be divided into three types:

Individual Households Institutional Markets (include government institu-

tions, hotels and other profit/non-profit businesses) Perfume industries

Flower supply chain: Global and Indian context

Gradually diversifying in terms of global actors (Exhibit1), about 120 countries are actively involved in the flori-culture industry today, with the Netherlands holding lions

share of 52.3% in global export. Economies like Nether-ands, Columbia, Israel are dependent on the floriculturendustry. Countries like Ecuador, Kenya, Israel, Costa

Rica, Thailand, Poland, India, China, Republic of Koreaand Mexico have emerged recently as global producers andexporters mainly to the USA and Europe.

There are three major markets, as evident from the mapbelow, which import the lions share of the worlds total

production of fresh cut flowers.

Fig 1: Flower Routes

Source: Geo Magazine, Edition 43,

December 2011, Article: Flower

Power - Blooming Business, page

118

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Conclusion

Indian supply chain mainly suffers from lack of coldstorage facilities and technical expertise to grow ex-

port quality flowers because flowers which are dam-aged, diseased or lack luster are not accepted in inter-national market. India is potentially strong to be the

face of future flower industry globally, and elimina-tion of such barriers in supply chain can help devel-oping this industry which in longer run shall be help-ful in addressing domestic challenges of unemploy-ment and poverty.

flowers. While for shipping, the vase-life of cut flowershas to be increased to a month, transportation though air-craft increases loss due to bad adjustment in the cargo holdof passenger aircraft. The practice of using ethylene insteadof refrigeration for cost-cutting adversely affects the vase -ife of flowers. Moreover, flowers develop cuts and

bruises due to bad packaging during transportation or dueo any other kind of mistreatment

Exhibit 1

Major Importers of flowers

Source: SADC Trade; Trade information

brief, Cut flowers and foliage

Major Exporters of flowers

Source: SADC Trade; Trade information

Exhibit 2

The Foot, Cone & Belding grid

(FCB matrix) for analysing cus-

tomer-product relationship for

flower industry

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Mantra to Successful Retail

SUPPLY CHAIN IN ORGANIZED RETAIL

n the organized retail market in India, the role of supplychain is very important for the fulfillment of the customerdemands at affordable prices with a variety of productmixes. The retailers need to maintain a balance betweenhe product mix and the inventory as holding excess in-

ventory is a costly affair. There are various factors thathave made the function of supply chain more complex inhe retail market. The infrastructure in India in terms of

road, rail and air links is not sufficient. Evolving retailrends like dedicated category formats, online retailing

and its private labels make the supply chain even morecomplex.

MAJOR ASPECTS OF THE RETAIL SUPPLY

CHAIN

Demand Planning

This basically pertains to the process of forecasting total,annual or the seasonal demand, depending upon the plan-ning cycles. Major retailers do a product wise demand

planning. The total demand which is forecasted for eachproduct is divided into various regions as per the pastsales data. This process is mostly mapped at a store levelby most of the retailers except for those having a fewstores in the area. They do a hub level forecasting. More-over the slow moving SKUs and private labels are

mapped at hub-level and the fast moving SKUs aremapped at the store level.

Demand planning process takes into account various

parameters like past sales data, trends and seasonalityto arrive at the demand. Seasonality is majorly visible

to the apparel retailer in which there is a high variation

from season to season in the sales of the SKUs. The

fashion apparels have higher seasonality than basic ap-

parels. The other major factors which are taken into

account are the promotional schemes (in house or ven-

dor planned) and the vendor inputs. But to arrive at a

final figure, annual budgets, sales targets, competitor

strategy are consumer trends are also taken into ac-count.

Inventory Management

Major Indian retailers follow a top-down planning ap-proach, where the budgets and the inventory decisionsare taken at the corporate level. Most of the retailers inIndia take the decision of merchandising on the basis ofthe margin derived from it. The supply on hand varies

between the different categories. It depends on the fac-

tors like throughput of inventory, fill rate and the leadtime of the supplier.

Inventory Issue: Time sensitive inventories and foodcategories account for highest level of waste. This hap-

pens due to inadequate storage facility, theft, pilferageand expiry. The other major inventory issues are thestock-outs and the over-stocks. In India, the supplier-retailer collaboration is at a nascent stage. Thereforethere is always a communication gap between the fore-cast of the customer and the supplier. Stock-outs result

in the loss of the sales opportunity and are generallyexperienced in the fast moving SKUs. The issue of over-stocking is largely a result of the improper demand

planning and the replenishment process. For food cate-gory, it translates into wastage due to expiry. For appar-els, the overstock leads to sales promotions and therebyto market planning. For consumer electronics overstockleads to obsolescence that needs to be depreciated orrevaluated.

Replenishment Process

The process of replenishment is completely systemdriven for the modern trade. There are various triggerswhich are used for replenishment. The most common ofthem is MBQ (Minimum base quantity). As soon as theinventory level falls below this, an intent is generatedfor that inventory. Some of them even have a maximum

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ime the level of inventory does not overshoot this level.Others have a supply on hand criteria where they definenventory on basis of the days of the stock. At all times theevel has to be maintained so whatever inventory is sold-

off is replenished to maintain the level. There are mostlywo models of replenishment followed i.e. Hub and Spoke

Model wherein the inventory is routed through the ware-house to the stores. That is the vendor supplies the stock tohe warehouse from where it is moved to the stores. Thessue with this method is that it raises the holding cost forhe retailers.

Partial hub and Spoke model is the one where there are

some SKUs (mostly the fast moving SKUs and DSI) that

are directly replenished by the vendors at the stores

whereas the slow moving SKU/private labels are replen-

shed from the warehouse by the vendors and from there it

moves to the stores. The replenishment cycles are calcu-

ated mostly on a daily or weekly basis. Earlier the trend

was more towards a monthly and weekly process. But as

he processes are becoming more refined and industry esti-

mates more accurate, the cycles are being calculated on a

daily basis. In fact, some retailers are planning to calculate

he replenishment cycle twice a day. This would basically

et them to replenish the same day inventory that is sold

out by the afternoon. The performance of the vendors is

racked by the fill rates. The benchmark rate for the Indianretail industry is 97% (Ref: Indian retail report 2009). As a

result the big vendor have a low fill rate ranging around 50

60%.

The Way Forward

As Indian retailers ramp-up operations by opening multi-

ple stores across the country, the need for integrated sup-

ply chain solution becomes critical to improve store man-

agement and increase ROI. In order to make supply chainmore robust, the retailers should strive for the following:

1) A shelf-centric partnership between the retailer and

the manufacturer which will create a loss-free supply

chain by combating the changes in demand variability.

This will also lead to reduced cost and shorter order

cycle time.

2) Outsourcing the logistics to better manage complexsupply chain and to focus on the core business. The

logistics firm can also take care of the related services,

inbound warehousing, labeling, packaging, fleet man-

agement, order picking and inventory management.

3) Employ Advanced SCM tools like Demand man-

agement, CPFR (Collaborating, planning forecasting

and replenishment system) which helps in capturing

inputs from the vendors about real time sales data and

also helps in analyzing consumer needs from the CRMinputs. Moreover such tools should help in acute

planning for acute situations like recession

Fashion markets are synonymous with rapid changeand as a result commercial success or failure in thesemarkets is largely determined by the organizations

flexibility and responsiveness. Responsiveness is char-acterized by short time-to-market, the ability to scaleup or down quickly and rapid incorporation of con-

sumer preferences into design process.Fashion industry is associated with following charac-teristics:

1) Short Life Cycle- The product is often ephemeral,designed to capture the mood of the moment. Conse-quently, the period in which it is likely to be saleableis likely to be short and seasonal, measured in monthsor even weeks.

2) High Volatility: Demand for these products is rarelystable or linear. It may be influenced by the vagariesof weather, films or sports events.

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3) Low PredictabilityBecause of the volatility of the de-mand, it is extremely difficult to determine an aggregateforecast with high accuracy. It becomes even more com-plex to determine the weekly demand or the demand w.r.t.a S.K.U. or category.

4) High Impulse Purchasing: Many buying decision by the

consumers for these products are made at the point of pur-chase. In other words, the shopper when confronted withhe product is stimulated to buy it. Hence the availability

of the merchandise at the touch points is critical to sale.

5) The growing tendency to source products and materials

offshore has led in many cases to significantly longer lead

imes. Though there is usually a substantial cost advantage

n manufacturing through sourcing from low labor cost

areas, the effect on lead time can be detrimental.

To understand the forecasting, it is necessary to under-stand the life cycle of the product. The life cycle phasescan be categorized as:

Pre-season: In this phase, planning for the designs, colors,style and materials is done by the designers. The forecast-ng helps in determining the volumes in which the catego-

ries and styles need to be produced.

Early Season: It marks the start of the season where themajority of styles are sent to the shops and sales start to

ncrease. This phase helps in determining the styles whichperform above average and below average as the plannedperformance in each category. The expedition of aboveaverage performing category can be planned at this phase.

Mid Season: Thisphase involves starting with the mark-

down of slow moving styles with some promotions and

advertisement effects. It also includes end-of-season sales

for all the remaining left styles for the season. This is done

o maximize the sales and to prepare for the next season.

Late Season: The remaining stock is sent back to thewarehouses and to certain other stores and factory outlets.

DEFINITION FOR FORECASTING IN FASHION

APPAREL

The process of forecasting includes determining the range

o be produced. The range constitutes of apparel varying in

styles, colors and size.

DIFFICLUTY IN USING CONVENTIONAL MODEL

FOR FORECASTING

The number of SKUs range from 200 to 3000 per season.As profiles in fashion industry breeds on freshness, newstyles and products are introduced every season. Hence,historical sales data is not very reliable in the fashion in-dustry.

The forecast is heavily dependent on the local condi-tions of the market, like competitive pressure, changein demographic in the market. The variations are ob-served not only in total sales but also on trends, colorsand style. The model which cannot incorporate suchvariations cannot be deemed fit for the forecasting offashion apparels. The models like Holts model, Win-

ters trend & seasonality model and exponential fore-

casting do take into consideration the trends and sea-sonal variations in the historical data but are not ableto account for the subjectivities in demand like com-

petitive pressure, seasonal bias in terms of styles andcolors. For e.g. products that may sell in Punjab maynot sell in Assam.

MODELS

There are various models that are being researched for

making a forecast for the fashion industry. Certain ad-vanced statistical techniques which have been used for

the forecasting in the fashion industry are:

Winters Thee Parameters Exponential Smoothen-

ing:

Winters powerful method model trend, seasonality

and randomness using an efficient exponentialsmoothening process. The underlying structure of ad-ditive trend and multiplicative seasonality of winters

model assume that:Yt +m-(St+Bt)It-L+m

St- smoothed non seasonal level of the series at end oft with smoothening of(alpha).

Bt- smoothed trend in period t with smoothening fac-tor of (beta).

m- horizon lengths of the forecast of Yt+m

It-L+m smoothed seasonal index for period t + m

with smoothening factor of gamma.

That is, Yt +m the actual value of the series, equals tosmoothed leveled value St plus an estimate of thetrend.

Bt times a seasonal trend It-L+m. These three compo-

nents of the demand are each exponentially smoothed

values available at the end of period t.

Artificial neural network model

Neural network mimic some of the parallel processcapabilities of the human brain as models of simpleand complex forecasting application. These modelsare capable of identifying non linear and interactiverelationships and hence can provide good forecast

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accuracy. ANN model consists of multiple layers.

Each layer has a set of variables and function. The

hidden layers are the variables in which several input

combinations from the input layer are fed and the re-

sulting output is also fed into the output layer..{x1..

xm} are the training vector and {z1..zm} is outputvector.

The above model is trained i.e. huge historical data is

fed and feedback of error with respect to expected is

used to tune the model.

12

Opscribe 12

C2X Article Writing Competition

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I do not drink milk as I don't like

t."

The Milkman of India V Kurien

Engineer and businessman V.Kurienassed away on Sept 9, 2012. He isest known as the father of milk

evolution and the creator of

Amul" Brand of dairy products.Amul or Anand Milk Union Limitedhas soared with revenue more than2 billion. He has founded around

0 institutions of excellence (likeAMUL, GCMMF, IRMA, NDDBtc) which are owned, managed byarmers and run by professionalssource: wiki). He was the first per-on to manufacture milk powder andondensed milk from buffalos milk

when other companies were making it from cows milk.

Currently 3.1 million producer members of Gujarat Co-perative Milk Marketing Federation Ltd. (GCMMF)

have a milk collection average of 9.1 million litres per

day. It is a very unique situation where the owners them-elves are the biggest vendors for the company.

Kurien, owing to his magnificent achievements, woneveral awards including India's second-highest civilian

honorPadma Vibhushan, the World Food Prize and theRamon Magsaysay Award.

The Amul Model

The Amul Model of dairy development is a three-tieredstructure with the dairy cooperative societies at the vil-lage level federated under a milk union at the districtlevel and a federation of member unions at the state level.Establishment of a direct linkage between milk producersand consumers by eliminating middlemen.Milk producers (farmers) control procurement, process-ing and marketing.

Professional Management

More than 15 million milk producers pour their milk in1,44,246 dairy cooperative societies across the country.

Their milk is processed in 177 District Co-operative Un-ions and marketed by 22 State Marketing Federations,ensuring a better life for millions.

Source: http://www.amul.com/m/about-usandwww.Wikipedia.org

Personality of the Issue

Dr. V Kurien

13

http://www.amul.com/m/about-ushttp://www.amul.com/m/about-ushttp://www.wikipedia.org/http://www.wikipedia.org/http://www.wikipedia.org/http://www.amul.com/m/about-us

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8,1

6

9,3 2

7 5

4 12

10

11

Across

4) An analogy of one person riding over another in logis-ics management (9)

7)A lean manufacturing technique used to analyze anddesign the flow of materials and information (5,6,7)

8) In warehousing, sometimes when the storage lane arenot filled completely by unit-loads of an item. The un-used pallet position in this high density storage is termedas (5,7)

9) Material type which supplier dominated having lowcontribution to firm's profitability is called (10)

11) Run charts allow you to determine______ (6)

Down

1) If I ask you to produce different quantities and types ofproducts every day, which Japanese quality principle am not following? (8)

2) A rapid and radical change process, sometimes usedas a precursor to Kaizen activities. (7)

3) 6 years, 30 Tier 1 suppliers, over hundred tier 2 and

3 suppliers and 15 countries involved. Which companydid this dream project? (6)

5) One of the company's claims to fame is that it manu-factured the equipment that enables Cadbury to mix thedistinctive yellow and white fondant at the heart of itsCreme Eggs. (4)

6) Part of very famous concept in operations, it repre-sents a time buffer ensuring the customer shipmenthappens on time (4)

10) JIT systems regard inventory in excess of current

production and R & D needs to be __________ (5)

12) Evolving set of best practices that help supply chainpartners jointly plan some or all key activities from pro-duction of raw materials to the sale of finished goods(4)

Crossword

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After much criticism from every corner for its lethargyand haplessness, the UPA government finally ended its

policy paralysis and unleashed a wave of big ticket re-

forms most notably among them was the decision to al-

ow 51% FDI in Multi brand retail.

This means that several international retailers like Carre-

four, Wal-Mart can now open majority ownership shops

n India where retail is $450 billion industry 90% con-

rolled by unorganized small and medium traders. This

decision boosted the morale of Indian Corporate sector

and Indian shares traded in New York reached their high-

est level in five months.

Although the government has left the decision up to

states regarding the implementation of policy, most Con-

gress led states have welcomed the decision and others

are expected to follow suit once the benefits start appear-

ng. The benefits expected from this policy are:

For the economy, it means more FDI investment which

grew from $7.6 billion in 2005 to $35 billion in 2009, at

an annual FDI inflow of $20.4 billion per annum between

2006 and 2009. In comparison, the estimated inflow of

$3 billion from FDI in retail over the next five years

seems modest. This would lead to creation of around 10

million jobs as per Government of India and will help

control inflation, spur investments in the country and

boost realty. The compulsory 30% sourcing norm from

MSME sector is a big opportunity for suppliers.

For the industry it means an opportunity to attract foreign

nvestments which would help in expansion, mergers and

partnerships. It would also help the industry tackle the

rising problem of mounting debts which led to closure of

retailers such as Vishal Retail and Subhiksha. The effi-

ciency of the industry is also expected to increase

hrough involvement of relevant technology, inflow of

knowledge from international experts, growing competi-

ion and investment is supply chain logistics.

For the general public it is expected to bring a variety of

products at cheaper prices through investment in supply

chain logistics such as infrastructure, transportation,

storage, cold storage facilities for perishable items and

3rd party supply chain companies. The players in multi

brand retail will buy directly from farmers and invest in

storage facilities to reduce wastage thus bringing down

the costs by eliminating middlemen, wastage and other

transportation costs. This would require huge invest-

ments in supply chain logistics which is expected

through FDI. The fear of local retailer shutting down

due to opening up of modern retail stores is also mis-

placed as currently the local Kirana stores are coexist-ing comfortably with the likes of Reliance Fresh and

Tata Tesco and the policy comes with a one million

population rider restricting such stores to around only

53 cities. The example of farmers doubling their in-

come after direct contract with Pepsi Co. and ITC due

to improved productivity and stability also serves as

example of it being a win-win situation for the farmers

and the retailers.

The policy was a much needed respite from the gloomypicture drawn due to decreasing production figures,

credit rating downgrading and popping up of one scam

after another.

References:

1) Bhavesh Shah and Himansh Dhomse , FDI in retailpositive in long term Daily News & Analysis , Sep.15,2012

2) ET Bureau, UPA unleashes big-ticket economic re-forms: India Inc cheers FDI in retail, aviation andpower exchanges, The Economic Times, 15 Sep. 2012

3) Nilanjan Banik, The big picture on FDI in retailwww.thehindubusinessline.com/opinion/ arti-cle2714921.ece (Published Dec.14,2011)

4) Paresh Parekh, Expected impact of FDI in Retail Ernst & Young India Viewpoint http://www.ey.com/IN/en/Industries/India-sectors/Retail---Wholesale/Retail_Expected-impact-of-FDI-in-Retail (AccessedSep.17, 2012)

15

News Corner: FDI in RetailAnkit Rampuria (NITIE)

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Who We Are...

C2X, Chain to Excellence, the supply chain forum is an endeavor by students of NITIE to catalyze thesupply chain interests and to bring awareness about up-to date industry best practices and latest supplychain innovations. In this current age, where the competition is no longer between the organizations but

between their supply chains, C2X is an initiative where NITIEans do their bit to bring out the best of theindustry to one and all.

The forum aims at being an interface between industry and academics. The raison dtre of C2X is tosupplement the teachings at our institute. Our activities focus on enlightening the students on SupplyChain by conducting various group activities, guest lectures, case studies and knowledge sessions etc.

We believe that supply chain being a very dynamic field, there is a lot to explore and lot more scope forus to improve. We hope you enjoy the magazine as much we enjoyed creating it. Please do write to us incase of any concern.

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