Significant overseas investment and a rapidly expanding domestic market have skyrocketed India to become the 12th largest economy in the world. Having experienced an estimated 6.8% growth in 2008, India's GDP surpassed the $1 trillion mark. And, though current predictions show a slowing to 5.5% in 2009, India continues to face pressing issues, specifically in terms of effectively managing a rapid spike in demand. Many companies are taking advantage of this "lull" to adjust their supply chain operations.
Current Operational Challenges
Regardless of size or industry, the majority of Indian companies are facing several common operational challenges. Global economic conditions are driving an increased need for companies to evaluate their supply chains more frequently to balance costs and services. Bi- and tri-annual operational reviews are now essential to meet increased demand, adapt to varying fuel prices and account for fluctuating currency valuations.
To keep pace with the country's rapid growth rate, companies in India have been extremely focused on building production capabilities, distribution networks and retail outlets. The result is complex supply chains with long lead times. As the market continues to mature, companies must recognize the difference between supply chain execution and supply chain optimization and focus efforts on optimizing operations to become more efficient.
Finally, the need for market-driven consumer data is becoming more critical than ever before. Plans have traditionally been built based on best-guess estimates and spotty historical data, resulting in too much or not enough inventory at the wrong place and time. Companies must begin to capture and utilize point-of-sale data and ensure their supply chains are flexible enough to adapt to shifts in demand not only weekly or daily, but even by shift.
The Five Keys to Success
To address these challenges, companies should focus on the following five areas:
1. Ensure a clear understanding of local principles, customs and barriers. Doing business in India requires a thorough understanding of the unique culture, legal regulations and infrastructure of the country. Even conducting business in northern India versus southern India can vary drastically. Understanding tariff structures, road taxes, patent legislation and labor laws is crucial to running a successful business.
From a logistics standpoint, knowing the limitations of India's transportation infrastructure is critical. A global retailer on a worldwide basis may operate a direct shipment model where vendors directly delivers to stores, shifting to a hub-and-spoke model in India, in which goods are delivered to a central warehouse and then distributed, likely makes more sense. The most successful companies have the flexibility to adapt-even within India-to the varying restrictions and needs.
2. Establish constant communication. The sheer size of India -- about one-third the size of the U.S. -- poses a unique challenge for companies doing business in this region of the world. India's improving but still insufficient communications infrastructure means that companies must adapt traditional means of information sharing to ensure that manufacturers, suppliers and retailers are on the same page. Companies are addressing this issue with use of dedicated Web portals for exchanging information. These portals enable trading partners to share information from diverse sources in a unified manner in order to reduce lead times and operational expenses. In fact, many large manufacturing companies are allowing their partners, vendors and dealers to have direct access to their internal supply chain management systems in order to increase visibility with minimal investment.
HyperCITY Delivers the Goods Leading Indian retailer HyperCITY recently underwent a major software implementation in order to ensure that all of its more than 50 stores were synchronized on a common system. By deploying an advanced replenishment solution from JDA Software, the stores are able to communicate in real-time to better coordinate and manage inventory. The solution can able to manage SKUs at a detailed level by region, category, department, etc. Arun O. Gupta, group chief technology officer of HyperCITY's parent company, Shoppers' Stop, noted these benefits:
3. Develop comprehensive procedures and processes. The rapid growth of the Indian economy left businesses scrambling to keep pace. As a result, little time was spent putting in place the clearly defined processes and procedures needed to continue to scale efficiently and effectively. Indian companies can address this by evaluating and streamlining current operations-not just in the more traditionally structured supply chain function, but also within sales and marketing. Once defined, standardized processes and procedures can easily be replicated as a company expands.
HyperCITY Delivers the Goods
Leading Indian retailer HyperCITY recently underwent a major software implementation in order to ensure that all of its more than 50 stores were synchronized on a common system. By deploying an advanced replenishment solution from JDA Software, the stores are able to communicate in real-time to better coordinate and manage inventory. The solution can able to manage SKUs at a detailed level by region, category, department, etc.
Arun O. Gupta, group chief technology officer of HyperCITY's parent company, Shoppers' Stop, noted these benefits:
The Indian consumer packaged goods (CPG) industry has made the most strides in this area, with leading companies operating with a very structured base for demand forecasting. These initiatives include using secondary sales data -- or distributor sales data -- to generate distributor-centric forecasting and network stocks to arrive at channel requirements for each particular time frame.
While the CPG industry has adopted meticulous control mechanisms to achieve accurate execution targets, the next step is to analyze the impact of various types of drivers like pricing and promotions on overall customer demand. This analysis has the potential to significantly improve forecast targets with resulting overall lower supply chain costs.
In addition to demand forecasting, vendor management is increasing in adoption as a means for streamlining supply chain operations. The automotive sector in India is making the greatest strides in this area by following very rigorous processes for vendor management - including quality, delivery and service improvement aspects. Automotive companies are not only tracking inbound shipments but also overall outbound performance of vendors, including shipments to other customers. The next step within this industry is to optimize scheduling to balance the assembly line capacity with item availability. By synchronizing the multiple dynamics of demand planning, production planning and vendor schedules companies will have the ability to reduce over-stocks and stock-out situations.
4. Ensure the quality of input information. Information flow and purity is a primary concern for many Indian companies. Most companies are developing merchandising plans without any actual demand data. This means that the gap between customer purchasing information and supplier planning forecasts is continuing to widen. As a result, shelves are filled with too much of the wrong inventory or customers are not finding what they need when they need it. Tools such as Collaboration, Planning, Forecasting and Replenishment (CPFR) solutions and Sales & Operations Planning (S&OP) solutions can provide a link between disparate information, allowing companies to create plans based on actual demand data.
CPFR solutions enable suppliers and retailers joint visibility into and management of inventory. Current and expectant inventory levels and requirements can be continually updated and merchandising, inventory, logistics and transportation needs synchronized. For even greater efficiencies, companies are investing in S&OP solutions to bring together traditionally disparate silos of operation under a single, comprehensive view. It does this by providing a comprehensive view of overall capabilities and constraints that can be reconciled with operational and financial goals.
To keep pace with expanding customer demand and an aggressive growth strategy, one of India's largest telecommunications retailers recently underwent a comprehensive software applications implementation aimed at integrating business processes across departments onto a single enterprise-wide information platform. Careful capital investment in merchandising, store, customer relationship management, planning, replenishment and analytic applications will assist with improving coordination across functional departments and increasing efficiencies of doing business.
5. Identify and integrate the right professionals and insist on teamwork. The supply chain is not only about material flow but also about interconnected human beings across organizations. The scarcity of skilled, knowledgeable and committed workforce is a challenge facing Indian companies. With an increased number of mergers and acquisitions and management takeovers, remote reporting is becoming a mainstream part of corporate life. A team approach enables companies to utilize individual strengths to strategically map skill sets to form specialized and productive teams. Doing so not only helps to lower operational costs but also brings in efficient customer management and sustainability.
Specific to supply chain operations, an increasing number of Indian companies are moving toward a cross-functional team effort. Yesterday's logistics and procurement personnel are being brought together to form a "supply chain team" with shared responsibilities. As a result, supply chain teams can take initiative in demand forecasting accuracy-even though they are not directly responsible-because they are highly affected by any inaccuracies.
There is significant opportunity for Indian companies to leverage best-practice procedures and processes from across the globe and across the supply chain function. The most successful companies will continue improving the design and utilization of their global supply chain network and maintain the values and customs intrinsic to the Indian culture to thrive in today's demand-driven world.
Stephen McNulty is regional vice president, Asia Pacific, JDA Software which delivers integrated supply chain as well as merchandising and revenue management planning, execution, and optimization solutions for the consumer-driven supply chain and services industries. www.jda.com