Magister Operandi | 2015 · Magister Operandi | 2015 Autumn Edition 1 Jan Dhan Yojna –...

Magister Operandi | 2015

FROM HOD’s DESK….

Dear Readers,

Greetings from Shailesh J. Mehta School of Management!

We welcome you to the Autumn Issue of Magister Operandi: Bi-annual

Operations magazine by Opera, The Operations and Supply Chain club of the Shailesh J. Mehta School of

Management (SJMSoM), IIT Bombay. The vision of the club is to impart basic knowledge and guidance in the

domain of operations and supply chain management to all the budding managers. Magazine brings out how

everyone views the world around them through the operations lens.

Opera, the operations and Supply chain club at SJMSoM, IIT Bombay serves as a platform for the students, faculty

members and industry practitioners for sharing of knowledge in the field of operations and supply chain

management. The club tries to acquire as much knowledge as members can share with everyone. I sincerely hope

that Opera will reach new heights with the unmatched enthusiasm and talent of the entire team.

The articles in this issue will give you the usual flavour of operations but with a lot of focus on incremental and

radical change that innovations in this field can bring in our day to day lives. You will find some suggestions, some

critics, and a lot of insights on the way it can happen. The articles cover lots of current issues like “Make in India”,

“Goods and service taxes”, the cover story features the story of evolution of quality in India. From the Autumn

issue of Magister Operandi, we intend to reach more readers and seeking significant contribution from our

new readers. Magister Operandi is a platform where we share and acquire knowledge about operations &

supply chain management related activities, trend in industries around and prepare ourselves as integrative

managers to face the future challenges. It’s the purpose of our life to spread the knowledge and

experience to the benefit of entire society at large.

I hope that this magazine will help you gain more insights into the developments in the field of operations across

the world. I also take this opportunity to congratulate Opera club members for the effort behind the creation of

this magazine and to everyone who contributed to this magazine.

Best Wishes and Regards,

Prof. Shivganesh Bhargava

Head of Department, Shailesh J. Mehta School of Management

IIT Bombay


WORDS FROM OPERA…

Team Opera, Operations club of SJMSoM, IIT Bombay, brings you “Magister Operandi‟, the biannual operations

magazine of SJMSoM, IIT Bombay. The editorial team has new blood altogether and we bring this edition to you

with lot of enthusiasm and hope that it helps build new perspectives and insights to add to your knowledge. Before

we introduce you to the intriguing world of operations management we would like to take this opportunity

to thank each and every one of you who has contributed for the magazine.

In this edition we bring to you the articles that dissect the burning issues of this domain. We have selected and

included some of the articles which we got as an overwhelming response to the article writing competition.

To keep ourselves abreast with the industries we have included industry connect, which captures the current

scenario of power industry, one of the pivotal building blocks of our society.

We also tried to capitulate the opportunity to capture few insight from faculties’ rich experiences under the section

Expert views.

Our “Cover Story” “Quality Evolution In India” captures the complete story of quality era and every twists and

turns in India since the liberalization of Indian economy.

The last few pages present the snippets of the activities that OPERA, the Operations club of SJMSoM, IIT Bombay

performs throughout the year.

So get set to enter into the world of Operations Management where a plethora of ideas and concepts await your

perusal.

HAPPY READING..!!

Team Opera

Deepak Arya Ankur Kumar Anish Maheshwari

Imon Kalyan Saha Krishnakumar PG Karan Kumar


CONTENTS…

Magister Operandi | 2015 Autumn Edition

1

Jan Dhan Yojna – Operational Aspect

Financial inclusion plays a crucial role in promoting

economic growth and reducing inequality & poverty.

In India, it was started with nationalization of banks

in 1960s but in past few years, government has

shown very keen interest in it. In 2011, the UPA

Government launched ‘Swabhimaan’ campaign 1 .

This campaign, however, focussed only on the

supply side (providing bank facility) but the

convergence of comprehensive financial inclusion

such as opening of bank accounts, access to digital

money, availing of microcredit, insurance & pension

was lacking. Thus ‘Pradhan Mantri Jan Dhan Yojna’

was announced by PM Narendra Modi on Aug 15th,

2014 to address these issues1. This Yojna provides

many special benefits e.g. zero balance, accidental &

life insurance, overdraft, etc. to lure people into

opening bank accounts under this scheme. But

unfortunately, this scheme faces many operational

issues, just like ‘Swabhimaan’ campaign did and

could not withstand. In this article, specifically these

operational issues and their plausible solution will

be discussed.

Operational issues

Jan Dhan Yojna made it to Guinness World Records

by opening 11.5 crores accounts in a short span of

five months1. But is it really that successful? Has it

served its purpose of comprehensive financial

inclusion? The answer is not really clear. The

primary purpose of this scheme was to reach urban

poor and rural areas. But that is not completely

happened. Apart from this, Jan Dhan Yojna has also

led to increased cost for banks. These issues are

discussed in details below-

Supply Chain – The aim of the scheme is

“Comprehensive Financial Inclusion”. Accounts

opened under the scheme are more than expected

but it has not been very successful in covering rural

areas. The main reason behind it is “Banks’ weak

and inefficient supply chain network in rural areas”.

In order to address this issue, banks engaged

Business Correspondent Agents (Bank Mitras) as

retail agents at locations where brick and mortar

branch or ATM is not viable1. But in reality, so far

this model has not been very successful. Attrition

rate of Bank Mitras is very high because of their low

compensation which does not commensurate with

the hard work required for the role. Moreover,

people in rural areas find it difficult to trust a

random person with their hard earned money. So it

is imperative for banks to come up with an efficient

and effective supply chain so the efforts of this

scheme will not end in smoke.

Cost inefficiency – Financial viability is vital for any

scheme to succeed. Because of political pressure,

banks have been enrolling people who already have

bank accounts so a large fraction of sizeable new

accounts opened are duplicates.

Magister Operandi| 2015

Moreover, many of these accounts are expected to

become dormant as in the scheme of previous UPA

government, six crores account were opened but

more than half stayed inactive1. These duplicate and

dormant accounts lead to increased costs for bank in

order to maintain them. Because of high attrition

rate in Business correspondent model, cost of

training has also gone up. These issues must be

addressed so the scheme does not become onerous

for banks.

Plausible Solutions

Efficient supply chain – Even today, banks are not

close to many villages. Business correspondent

model which was introduced to overcome this issue

has not been a real success. In my opinion, the

traditional “Brick & Mortar” model of small

branches can be a solution. This option will also

negate the issue of people not having trust on Bank

Mitras. The biggest challenge in this idea is setting

up of these small banks. In my opinion, Government

can help in following ways –

· Use of Government property e.g. Railway

platform, Post Office – Government can

allow public sector banks to use some free

space in government properties. Near every

four or five villages, there is a railway

station. Some space of platform can be used

for setting up a small bank. Otherwise, post

offices can also be of great use as post office

network is thoroughly established in both

rural and urban part of India. Other utilities

e.g. electricity will also be available here. So

use of available government property can

reduce their initial investment as well as

operating cost significantly.

· Bringing Post office accounts under Jan

Dhan Yojna –In 2012, there were total 28

crores accounts in India Post which had

around INR 6 lakh crores1. It can be said that

a large chunk of these accounts belongs to

rural areas as 89.76%1 of total post offices

are situated in rural areas only. In contrast,

total 11.5 crores accounts under Jan Dhan

Yojna have total funds of only INR 6

thousand crores. It shows the relative

success of India Post. After a year, perhaps

Jan Dhan Yojna would have more accounts

than India Post but it is very unlikely that it

would cross the India Post’s total funds

mark. People will be lured to open an

account under Jan Dhan Yojna because of

special benefits, but these accounts can

remain dormant as they will keep using their

India Post account only. Clearly there is no

need for India Post and Jan Dhan Yojna to

compete; hence it would be beneficial if

India Post accounts can also be covered

under Jan Dhan Yojna. It would also reduce

the share of dormant accounts. Moreover,

India Post accounts can be converted into

commercial bank accounts and included

under Jan Dhan Yojna. This will also bring

the confidence in Jan Dhan Yojna scheme.

Aadhaar Card – If every account can be linked to an

Aadhaar Card, then it would become very easy for

the government to identify duplicate accounts which

would present very clear picture of the success of

Jan Dhan Yojna. Another recommendation would be

to enroll people an Aadhaar Card while opening Jan

Dhan Yojna account. It would also lead to the

universal success of Aadhaar card.

Handling of dormant accounts – Accounts can be

categorized by their dormancy period. Accounts can

be considered “inactive” after one year with no

activity and “dormant” after two years with no

activity. Account holders will receive the notice of

their account’s status. If declared dormant with zero

balance, accounts should be closed. If there is some

balance then dormant fee should be charged but it

must be very “reasonable”.


3

`

References

1http://pib.nic.in/newsite/efeatures.aspx?relid=84236

1http://www.narendramodi.in/pm-launches-pradhan-mantri-

jan-dhan-yojana/ 1http://articles.economictimes.indiatimes.com/2015-01-

21/news/58305891_1_pmjdy-bank-accounts-jan-dhan-yojna 1https://www.sbi.co.in/portal/web/customer-care/-faq-

pradhan-mantri-jan-dhan-yojana-pmjdy

1http://www.moneycontrol.com/news/economy/critics-

attack-wasteful-ineffective-pm-jan-dhan-

yojana_1169557.html 1http://www.indiapost.gov.in/Pdf/Book_of_information_2011

-2012.pdf 1http://www.indiapost.gov.in/Pdf/Book_of_information_2011

-2012.pdf

CONCLUSION

So, if all these issues are addressed carefully, the dream of universal access to banking facilities

will soon come true. But if not, then Jan Dhan Yojna will also fail like UPA scheme and it will be

remembered as nothing more than Prime Minister Modi’s attempt to please voters.


Supply Chain Management encompasses a series of

activities which involves procuring raw materials from

suppliers, transporting them to manufacturing units,

transforming the raw materials into finished goods and

distributing them to the customer. Since the entire

process comprises of complex network of suppliers,

factories, distribution cells and customers, the system

has to be efficient, effective and robust. This was the

traditional SCM Model. It had some limitations, such as,

in most of the cases it had fixed designs that could not

be changed according to the real time environment. Also

the model used to be cost oriented and not revenue

oriented. To save upon the recurring cost, a generalized

Supply Chain System was implemented. For this process

to work in the desired manner flow of material and

information becomes pivotal. But the flow of

information is often outpaced by the flow of materials in

the SCM. Information technology is used passively to

study the processes but no real time information is

available which could help analyze demand the

inefficiencies associated eventually assisting us in taking

and implementing decisions.

The above diagram depicts the business layers at various

levels of back end, distribution to retailers and

eventually to users, and usage of internet to get real

time information on the input provided. This layer gets

the data, processes it, and transmits the output to the

application layer.

STUDY SO FAR

IOT is a system where the physical objects are connected

to sensors making the objects omnipresent. The sensors

use the RFID technology to communicate among the

materials.SCM being a network of suppliers with

factories and distributors, eventually connecting to the

consumer, IOT would contribute in making the process

simpler and more efficient. There are 2 types of SCM:

ü Planning applications

ü Execution applications

Planning applications include different algorithms to

Internet Of Things In SCM


5

make and fill an order. Whereas Execution applications

include all the intermediate steps in delivering of the

order like, flow of finances, tracking the current location

of dispatched material and cost computation of reaching

the warehouse.

The technology used in making Internet of Things

practical is Electronic Product Code (EPC), Radio

Frequency Identification (RFID) and EPC global

Networks.EPC is a unique number on every item, which

becomes the identity of the item. It is like a barcode on

every item, only difference being that it is associated

with dynamic data of the item. Unlike the barcode,

which has only the product category, EPC holds the

identity of the item through the unique features of the

item, like date of production or independent serial

number. This makes the item equipped enough to be

tracked throughout its journey, from the manufacturer

to the buyer.

RFID is a wireless technology, used to store and process

information, modulate radio frequency signal and

transmit and receive signals. EPC, along with the RFID

chip is stored on an RFID tag. The RFID chip transmits

the information of EPC through EPC global Network. The

EPC global Network comprises of the devices and

services used for automatic identification and

immediate transfer of information on the items (EPC).

These devices include the EPC Readers and EPC tags, EPC

middleware and EPC Services, for smooth and

undisruptive transmission of information.

The RFID chip inside the RFID tag on the clothes allows

the automatic identification of the object. This

information passed through the network is read by the

wireless RFID reader, passing on the data, thus

displaying the item. CISCO defines the Internet of

Everything as a connection of people, data, information,

devices and things which will be more valuable than

processing and transferring of signals from one item to

market can be depicted by the following experiences:

1. High profitability by involving the customer-

Internet of Everything will help not only the

business in a sector, but will even improve the

customer experience, hospitality, and service.

This will in turn give more profits to the business

and a convenient experience to the customers.

2. Maximizing value of retail space- The space in a

mall can be utilized by putting up devices with

IOT given real time information of type of items,

sale, available stock, price and other related

information in a store. This will reduce the

requirement of excess or untrained staff in the

mall.

3. Location based services- This service can help

the retailer detect if their valued customer is in

the vicinity; they can drop a message to the

customer’s mobile phone. This message can be

about latest collection, new stock, or discounts

within a limited duration.

4. Optimize inventory- RFID sensors on the items

available at an outlet can help the shopkeeper

to detect the sales in surrounding region. The

retailer can check the sales of other stores on

some parameters like season, inventory sold and

also the colour sold maximum number of times.

This would provide the information regarding

sudden increase in sale of a particular item. The

retailer can then increase the inventory in

his/her store accordingly, based on weather,

popularity and so on.

5. Assisting customers- Sometimes due to time

constraints or various other reasons, customers

are not able to try on the clothes of their choice

before buying them. In that case, a customer

can just put a particular piece of dress in front of

him/her and check the fitting, colour and other

colours available in different sizes of that

particular piece of cloth. Also, to know real time

information, the customer can ask for further

help through the interactive machine present in

the store. This provides fast access of

information to the customer, increasing sales

and thus increasing profitability.

6. Connecting customers - This can help in

connecting customer to different sales outlets of

the same brand. The customer can look into his

phone to know which all stores have the same

clothes, in the required size and colour, in a

particular locality. These features help in

reducing confusion among different stores,

create a level of consistency among them and

provide flawless information to the customers

having different needs and requirements. Also it

would reduce significant amount of staff in the

stores creating a clearer and greater level of

understanding among the customers. This

creates not only a network among people and

material, but also creates value for this network.


Thus in current scenario, “Internet of Everything” is a

typical term given by CISCO.

CHALLENGES

ü Current Research: The research has to be done

more extensively as the technology with the

required efficiency and security is currently

insufficient.

ü Transparency in Logistics: Logistics has always

been an area wherein all the departments have

to have complete transparency for IOT in SCM to

be functional. This might necessitate some

changes and amendments to the Standard

Operation Procedures.

ü Cost: With unexplored areas still persisting in

IOT, there is an inevitable need for in depth

research of IOT in SCM. Operations, research

and procurement of materials for the

implementation of IOT and maintenance will

make it highly expensive to execute in everyday

life.

ü Efficiency: All the machines and sensors in IOT

are interconnected to each other therefore even

a smallest problem in any of the machines or

services in the system can lead to the failure of

the entire IOT system. This can only be

prevented by implementing an efficient system

and reliable materials.

BENEFITS

Ø Improved Inventory Management: Inventories

are kept as a buffer to meet the demand.

Businesses usually hold stock to meet the

demands of the customer because supplier

might not be able to produce that much and

meet the demand immediately; it might take

supplier many days to produce and deliver so as

to meet the demand. Moreover holding stock

for businesses is very expensive as it requires

infrastructure to hold the inventories. This is

where IOT helps, using IOT real time information

is available to the supplier about the stock

available and decisions can be taken regarding

production in advance which reduces the

number of days it takes to supply goods from

supplier to businesses and hence helps the

businesses to reduce the stock stored.

Ø Process Optimization: IOT has a great impact in

optimizing the processes and hence increasing

production. IOT uses the combination of sensors

and actuators to enhance productivity. During

the process sensors collect data and this data is

sent to the computers and analyzed. This is used

in turn to send signals to actuators that alter the

process based on the feedback given by

analyzed data. For example in paper and pulp

industry where the temperature of kilns is

important for the productivity, this technology

helps to reduce the variance in temperature and

increase the productivity.

Ø Resource Optimization: IOT can help in

changing the usage pattern of scarce resources

like water, power etc. by providing the real time

automated feedback for the same. For example

some energy companies are providing real time

information to their customer like power usage

and the real time pricing for the same. Based on

this information customer can make the

decision to shut down a particular device and

this helps immensely in saving energy.

Ø Increased Logistic Transparency: IOT helps to

make information pervasive across the entire

supply chain rather than in the hands of only

logistic operator. For example while

transportation of goods if the conditions are not

favourable for the goods driver is informed by

the automated system and he can take steps to

prevent the damage of good. This also increases

accountability on the part of everyone involved

in SCM. It also helps to reduce the number of

damaged goods and hence losses to the

business and enhances customer satisfaction


7

CONCLUSION

The Internet of things will help in evolving new business models going in future. Following can be

the potential businesses opportunities:

Data Storage and Analysis

With the increased use of IOT vast amount of data will be available and that data can be analyzed

to make important business decisions like pricing decisions. This data and analysis can expand the

business of data analytics manifold.

Data Security

With so much of data available, it will open new opportunities for data security vendors to protect

the confidential data from potential cyber-attack.

Carbon Footprint

IOT could be used to capture the carbon footprint per product and vast databases will be used for

the same. Moreover when the environmental issues assume pivotal importance businesses will

thrive using this data to cut down significantly on carbon footprint of different products, leading to

“Zero Waste Economy”

IOT has started shaping the way things interact with each other and open plethora of opportunities

for businesses. It has immense potential in improving SCM as discussed above. Companies in future

will expand using IOT and new businesses will emerge based on IOT.


On 25th September, 2014, the next day of India’s Mars

mission was announced successful, our Prime

Minister Mr. Narendra Modi announced yet another

ambitious campaign of Make in India to promote the

manufacturing sector in the country. It highlights the

goal of making India a global manufacturing hub and

bringing about the economic transformation by

promoting investments; eliminating the unnecessary

laws and regulations, making bureaucratic processes

more business friendly and making government more

transparent and responsive.

The campaign

got kicked off

by flashy

inauguration

ceremony, one

of the most

tech-savvy

government

website and

catchy one

liners by the

elected leader.

While lines

like- "We want

highways. We

also want i-ways (information ways) for a Digital

India"; "Make in India is not a slogan, not an

invitation"; “India focus is not only on Look East but

also on Link West” etc. catch interest of the mass and

the media quickly, giving it a hype like many other

initiatives by the Prime Minister; the campaign itself

is more than just a marketing gimmick on the national

level. It is an initiative for a series of fundamental

changes being triggered in the country on the context

of global business forum.

I wish to give three views of the manufacturing

movement.

The Optimist-

Initiative of NaMo- the charismatic business minded

leader

Almost four months have gone by after the big bang

start of the Make in India campaign and people have

started to realize that it is more than just an

overblown balloon by yet another politician.

KPMG and CII recently completed a report which

identified some key areas to focus for making India a

destination for production. They include-

Ø streamlining investment approval

Ø easing the land acquisition processes

Ø creating an appropriate labor development

ecosystem

Ø efficient and effective legal and taxation

enforcement

Ø promoting cross-border transactions

Ø technology-savvy government

The steps taken by the new PM have been very much

on these lines. The PM aims at making India a friendly

nation for new businesses. This reflects on ease of

doing business scale as improving India’s rank form

current 134th rank to a decent 50th. Single window

clearance is yet another initiatives for making the

regulatory and bureaucratic environment conducive

for the businesses. A special committee of experts

would be set up to resolve the grievances of the

Make In India: Are We Merely To Ape Chinese Model?


9

businesses within 72 hours from filing. These

initiatives have been under what our PM likes to calls

as Minimum Government, Maximum Governance.

The Pessimist-

Same medicine in new bottle

This is not the first time that India has set off to boost

the manufacturing arm of the country. In 2004, the

government set up the National Manufacturing

Competitiveness Council (NMCC). With the objective

to raise the share of manufacturing in GDP from 17%

to 30- 35% by 2015. In May 2011, government set out

with a goal of increasing India’s exports from $246

billion to $500 billion in the next three years instead,

the manufacturing sector saw a decline of 1.4% in

August 2014.

The figures have not changed much but the target

year has moved from 2015 to 2025.

First deficit is the crippling shortage factors of

production like power, hazardous labor laws etc.

Second deficit is in the infrastructure such as surface

transport and ports. The third set of issues is in the

legal and tax regime which is not very future oriented

and conducive to growth in addition to being rigid.

Retrospective taxation in Vodafone is an example of

this. Finally, there is the chronic and ubiquitous

corruption.

The Realist-

What worked for dragon will not work for the

elephant/ the dragon and the elephant don’t do the

same tricks

While the critics are enthusiastically claiming that

India is merely mocking the 1980s China, we will be

making a big mistake if we do so. The situation in

China was very different in 1980s than that in India

today. In China, the strong central government had

made inviting multinationals to the country is a top

priority as they were aware that the country was able

to grow on its own. In order to lure the manufacturing

units to the country, it gave them an arena with

rapidly developing infrastructure, government

support in matters of land acquisition, labor issues,

environmental concerns, raw material availability and

a growing market. 1979-81 was called a period of

readjustment which had a goal of expanding exports

rapidly, overcoming deficiencies in transportation,

communication and supply of raw materials. A major

shift in mindset was seen when industries were

allowed to keep a major part of their profits with

themselves after tax as against the previous situation

where the whole chunk of profit was supposed to be

submitted to the government.

Only now it is being publically known that while doing

so, issues like environment, land rights could be easily

manipulated as they agricultural land was almost

entirely under control of the central Maoist

government.

China is seen as the hub for manufacturing not only

because all the factories are present their but also

because all the support structure has already been

developed over the decades. This includes logistics,

supply chain, support operations and allied services.

As result, even if in the coming few decades China

losses the crucial advantage of low cost of factors of

production, companies will not immediately move out

to other regions. Chinese government has taken an

aggressive stance in developing support

infrastructure for exports.

In India, the situation is not exactly the same. The

support infrastructure is almost absent for export.

Secondly, we have such a huge domestic market that

export may not be the most lucrative option for many

of the industries. The blatant audacity with which the

Chinese government could take steps to set up

factories is not possible for any political leader in

India. Export may not be top priority on the country

for another reason. Along with China, many of the


South East Asian countries like Philippines, Indonesia,

Malaysia etc. have started to emerge as next

manufacturing destination. India, may have already

fallen behind these countries in the race of becoming

next China in the manufacturing world.

The

cost-

effective

manufac

turing

today, is

not just

about

having cheap labor. It is about having skilled labor

and advanced technology like 3D printing at our

disposal to create zero defect, zero effect products.

Our manufacturing goals should be able understand

the new-age market dynamics and recalibrate

themselves instead of only mocking the past

successes.

The PM is trying to create in a shift in the mindset of

the stakeholders- labor, bureaucrats and employers.

The policies like acceptance of self-certified

documents, a 72hours clearance window on the Make

in India website and other defined focus areas have

certain intangible benefits in this sense.

When developed economies like the US are renewing

focus on reviving manufacturing, 'Make in India' is not

optional step but a national obligation that is needed

to keep pace with global growth. Transforming the

vision to reality will require a solid roadmap which

will support not only manufacturing of the present,

but also of the future.


11

Industry expert- Prakash Khandelwal

Deputy General Manager, Operations,

ESSAR Power Limited

How supply chain in power sector is different from

other sectors like FMCG, pharmaceutical etc?

Supply chain is very different in power sector. The

end product (power) is an intangible product. Hence,

unlike FMCGs the distribution of end product is

completely different. For this purpose, the power

utilities are connected to regional grid or state grid

from where power is supplied to consumers. Now, as

you are aware that the power cannot be stored for

future use, so power utilities produce power as per

real time demand while on the other hand FMCGs can

create a buffer stock (Inventory) of finished goods to

meet sudden surge in demand. The quality of power

consumer gets depends upon the power distribution

network of their region. Talking about the upstream

supply chain of power utilities it is more or less all

about the fuel supply. Fuel is the lifeline of any

thermal power utility. Any sort of delay or

mismanagement in fuel supply logistics can prove

detrimental to the whole downstream system up to

the end consumer.

What are the key challenges in power business

supply chain management system?

In my opinion, transportation of raw material

required for power businesses i.e. fuel, (it can be

either coal or natural gas) and water up to site, along

with transmission lines used for power evacuation

are key challenges in power business supply chain

management. In India, only two to three states are

rich in Coal mines and natural gas blocks are located

in eastern and western parts of the country. This

increases the lead time as well as the cost of

transportation to power utilities across India. Further,

the transmission and distribution network is not up-

to the mark and way below global standards which

further deteriorates the reliability, availability and

quality of power being supplied.

What are the bottlenecks which have slowed down

the growth of Indian power sector?

In India there has always been a gap between

demand and supply of power with supply being

always in shortage. In order to overcome this, many

green field projects have started in recent past, but

they are facing problems like availability of fuel i.e.

coal and gas, issues related to power tariffs, land

acquisition issues, environmental clearances,

availability of trained man-power in the sector. Also

as the existing transmission and distribution system

is inadequate to handle complete generation capacity

of installed power plants; it results in underutilization

of the generation capacity.

In your opinion, what steps should be taken in

order to revive the current scenario in power

business across India?

Firstly, government should ensure proper fuel supply

to upcoming as well as existing power plants by

Excerpts from Interview of Mr. Prakash Khandelwal, DGM, Essar Power


efficient and reliable ways of fuel linkages, and

speeding-up the allocation of coal mines which is

under progress. Today, more than 15,000MW of

combined cycle power plants are installed condition

due to want of gas. So, steps should be taken such as if

natural gas in not available than LNG to be sourced

and supplied at competitive price to bring back these

plants to grid. Other steps involve strengthening of

transmission and distribution network and finding

out ways to reduces losses in the network so that

complete installed generation capacity can be utilized

in the most efficient way.

For young managers, power sector is generally not

a priority when it comes to choosing a career path.

Please throw some light on the opportunities this

sector provides for young minds.

That’s true. I would start by saying that growth of any

sector in country totally depends on how robust its

power sector is. And the fact is that to strengthen and

revive this sector in India, young and dynamic minds

with new and innovative ideas are required. Without

the slightest doubt I can say that there are a plethora

of exciting opportunities for young managers. Various

opportunities from planning to execution exist and

there are quite interesting as well as challenging

profiles in the domains of Operations, Finance and

logistics as well.

Any message you would like to give to our readers,

especially students?

In India per capita annual total electricity

consumption is around 917KWh which is way behind

worldwide per capita annual average of 2600 KWh

and 6200 KWh in European Union. So there is

significant scope of growth in this sector and if

everything goes correct than we can expect next

boom in this sector very soon. Today’s students are

future managers. I think more and more challenge

seeking minds will leverage upon this wave of

expected growth and opt for careers in power sector. I

consider the Indian power sector today as a large

start-up which will attract entrepreneurially oriented

students in near future.


13

So when I was requested to write an article for 'Magister

Operandi', I was not sure I could match up to the great

articles I’ve read in the previous issues. However, having

been a “member” of the Opera club myself, I thought it

was about time to be a more active participant! When I

began to think about topics that I could write on supply

chain, I thought it would be interesting to share an

untypical perspective based on my experience for the

past 6 years.

There are several kinds of roles that one can play in the

chain. Typically, one plays a role in contributing to the

daily business of “making a product” or making a

“product available” to the customer. As we all know, a

typical supply chain consists of the following activities

executed by respective functions (for eg. activity is

Forecast, function is Demand Planning):

Demand Planning works closely with Sales to ensure

that the forecast of each SKU (stock keeping unit) &

hence, the demand for the month is realistic (basis

previous few months, history over the years etc.). The

demand plans are converted to production plans by

Supply Planning basis the manufacturing capacity

available who then turn to Sourcing for procurement of

raw materials (RM) & packaging materials (PM). Once

the RM & PM is delivered to the plant by the supplier,

Production converts RM & PM to Finished Goods (FG)

and sends the FG to the warehouse from where the

Deployment team plans the distribution. Once the FG

reaches the distribution center (DC), the Sales team

takes over and the product reaches the Customer/

Consumer.

While the above is an ideal scenario, there are energetic

discussions between demand & supply planning teams

as they align upon the demand plans. Not to forget the

crazy follow ups sourcing needs to do to ensure that the

supplier delivers RM/PM on time. I guess you can now

also imagine how production has to in turn pester

sourcing so that their machines do not stop due to

storage of raw materials. By the way, machines also stop

due to a huge variety of other factors! We also have

production chasing deployment to empty the

warehouses and deployment trying hard to track the

trucks that haven’t reached their destinations on time!

And of course, we have sales who frequently complain

that stocks have not reached yet. This is a normal day in

supply chain!

So while the above is what we all typically know or

theoretically mug about supply chain, what we do not

know, usually, is what I feel is the “parallel world” of

supply chain. Have you ever wondered who procures

and installs manufacturing machines in a plant? How are

machines worth a few millions of dollars selected? How

is the capacity of a new manufacturing machine

Alumni Connect

Forecast/ Plan à Raw materials à Supplier à Manufacturing à Distribution à Customer à Consumer

Demand Planning à Supply planning à Sourcing à Production à Deployment à Sales à Consumer

Article by Ms Priyanka Gaikwad

Class of 2009

Assistant Manager

Johnson and Johnson


finalized? Is the warehouse size randomly decided?

Once installed, machines will run and manufacture the

product, why do we need managers/ supervisors when

operators can simply run the machine? How are

products developed? In fact, a basic question, how are

plants built and designed?

The answer to the above questions is PROJECTS.

Any supply chain organization will have multi-functional

teams with project managers to execute such kind of

projects. While daily business described above is an

everyday affair, projects generally last from a few

months to 3-4 years. There are several types of projects

ranging from “Overall equipment effectiveness” (OEE)

improvement, cost improvement, new product

development or high capital projects such as capacity

expansion. Teams formed for implementation of such

projects are not dedicated and do so while also

contributing to the daily business (except project

management which may be a dedicated function for

driving projects only). In rare instances (once in 25-50

years?), an organization may build a new plant, green-

field or brown field. The team for such projects is usually

dedicated to a project of this magnitude which runs into

several millions of dollars. Of course, there are many

other types of projects as well. I’ll dive a bit deeper into

these few to give a flavour of what they are.

OEE projects are process improvement projects which

identify faults in the manufacturing process. Down time

loss, Speed loss and Quality loss are the three main

factors of OEE losses. Down time loss is time lost when

the machine stops and leads to direct reduction in

capacity. If a machine stops for an hour in a shift of 8

hours, that is a loss of 12.5%! Machines can stop due to

several factors – breakdowns, jams, no raw materials, no

people, product changeovers, operator

trainings/meetings. Speed loss is the loss in output if a

machine cannot be operated at its rated speed. For eg. a

machine’s rated speed is 800 bottles per minute but it

can be operated at only 700 bottles per min, that is a

loss of 100 bottles per min. Quality loss is rejection of

product manufactured by the machine. If rejects are

high, the capacity output is low. Hence, OEE directly

impacts capacity. High OEE % leads to high capacity. The

production team usually leads the execution of OEE

improvement projects. The key factors of OEE loss are

first identified and then projects are identified to resolve

the manufacturing process issue. Down time loss is

usually the main cause of OEE loss.

Then there are cost improvement projects which are

driven by supply chain to reduce cost of product and

thereby, increase gross profit. These projects are

required to be identified first by various methods such

as product breakdown, process mapping etc. In product

breakdown, a product is broken down to its smallest

component. Each component is then analyzed to

identify cheaper vendors/variants, redundant

components, excess quantities of raw materials and

many more. Sourcing, external manufacturing (EM)&

technical teams plays a critical role in reducing cost of

the product. While executing cost improvement

projects, it is vital to remember to not adversely impact

the quality & safety features of the product. In process

mapping, the manufacturing process of the product is

studied at each stage of manufacturing. If certain

process steps can be reduced or modified to save cycle

times, changeover times etc., it also leads to cost

savings. These kind of projects are lead by production or

EM teams.

New product development (NPD)/ new product

introduction (NPI) projects are generally driven by the

marketing team. NPDs are launches of products that

have been locally developed through R&D. NPIs are

launches of products that have been imported from

affiliated foreign companies. Once marketing identifies a

new product that they would like to launch with an

approved business case, a multi-functional team is set

up. This team develops the product formulation and

manufacturing process. Prototypes are made and tested

by various methods such as stability testing, testing

products in usage conditions, consumer testing, blind

consumer testing etc. If the product passes the testing

phase, it is validated for the manufacturing process and

checked for quality standards. Finally, it is

commercialized and released to market after all

necessary documentation is completed.

An organization has an existing manufacturing capacity

including self-owned plants or external manufacturers

which together constitute their manufacturing network

or footprint. If the capacity utilization (demand divided

by capacity) is very high (above 70-75%?), the

organization may need to install additional capacity in

order to continue supplying the growing demand. Hence

new machines are required in the network. Such

projects are known as capacity expansion projects.

Procurement of new machines requires a team to

calculate the additional capacity required, choose the

right supplier/vendor and plan the equipment

procurement well in advance. Different products will be


15

manufactured on the equipment by different

manufacturing process. Hence, in parallel to equipment

procurement, a team also finalizes the manufacturing

process to be executed on the new equipment for

various products that will be manufactured on that

equipment.

So while we study and learn the importance of supply

chain, I hope to have shared another perspective about

the “parallel supply chain” that plays an extremely

critical role in ensuring that an organization runs

smoothly and is able to support growth. I also hope this

article gives several pointers for members of the Opera

club to discuss and debate upon!


It’s a gloomy rainy afternoon in Bengaluru, but Aditya

needs to buy a gift for his sister today for her birthday.

Five years ago, he would have went straight to a gift

shop or shopping mall around the corner of his street.

Today shopping starts from his couch at the comforts of

his home by surfing through different online

marketplaces, sifting through plethora of products

picking his favourite choices by reading the reviews on

different products, comparing the prices across online

portals and sharing the products with his close friends

for suggestions. He also checks out the nearest store for

availability and places the order. In no time the gift is at

his doorstep. This short instance shows how

Omnichannel retailing is revolutionising the retail

industry.

New breed of customers

The buying pattern of consumers has undergone a

revolutionary change with the burgeoning of digital

channels, customers are choosing more complex paths

including digital and brick and mortar shopping

experience, putting retailers operating in silos at a

competitive disadvantage. The new breed of consumers,

equipped with smartphones, are connecting to online

stores 24x7, shopping at their convenience, comparing

prices across different online portals, which are

competing to deliver products at lowest cost anytime

and anywhere. The shopper today wants synergy in

terms of pricing, availability, payment channels and

promotions. This can be achieved through omnichannel

retailing which emphasizes the brand instead of

concentrating on the channel.

What is Omni-channel retailing?

Omni-channel Retailing is an evolution over multi-

channel retailing, focused on providing a seamless

experience to consumers by integrating all the available

channels. Today, Omnichannel retailing stands as a best

solution to the brick-and-mortar retailers to compete

with online retailing firms. In fact, in The United States,

of the top 201 retailers selling online, majority of them

are omnichannel retailers who started initially as brick-

and-mortar retailers. In order to achieve this, retailers

should invest in technology to create a frictionless,

transparent and unparalleled experience across all touch

points to the consumers. The major objective of the

omnichannel retailing is to leverage online channels not

only to transact more business but also to drive business

to the stores. Shopping is fundamentally a social activity

and e-retailers are having hard time to duplicate this

experience to its consumers, omnichannel retailing gives

brick-and-mortars a great opportunity to leverage this

advantage.

Plethora of instances

Several retail organisations which adopted the

omnichannel mantra have begun reaping its benefits

already. The phenomenal success of Click and Collect

services at John Lewis, a high street fashion retail store

in UK is a prime example.This service lets shoppers opt

to pick up their purchases from one of the department

store’s outlets.Since 2012, Click and Collect service sales

have grown from 27% of its online sales to a very recent

49% in the 10 months of 2014 sales figures. In another

case, the UK retailer Tesco studied its South Korean

operation, known as Home plus, to determine how it

could increase grocery sales to time-starved Korean

consumers. In a pilot program, Home plus covered the

walls of Seoul subway stations with lifelike backlit

images of supermarket shelves containing juices, fresh

Omni-channel Retail: Future of Brick and Mortar Stores

Tiruchirappalli


17

vegetables and meat, and hundreds of other items.

Figure 1: Subway store of Home Plus

Consumers could simply scan each product’s Quick

Response code into their smartphones, touch an on-

screen button, and thereby assemble a virtual shopping

cart. Home plus then delivered the physical goods to the

shopper’s home within a few hours. According to Tesco,

more than 10,000 consumers took advantage of the

service in the first three months, and online sales

increased 130%. Such innovative and out-of-the box

ideas give customers access to more touch points

thereby integrating the retail operations with other

channels.

The Indian companies on their part are also making their

mark in this front. Future Group plans to invest Rs. 100

crore in partnership with Hybris Technology to provide

customers a ‘single view’ across physical and digital

channels through an omnichannel platform. "We will

leverage our modern warehouses, the distribution

centres and the huge customer data that we have to

offer a seamless experience," says Kishore Biyani, CEO,

Future Group. There are more examples like Shoppers

Stop, Infiniti Retail (owns Croma) and Aditya Birla group

who also have begun their journey towards developing

their own omni-channel platforms.

What’s in it for me?

But why are the traditional retail chains investing so

heavily in integrating their channels? The answer is

simple: Digital Retailing is here and it’s big. You either

transform your business or you perish. India’s online

retail industry has reached a phenomenal figure Rs139

billion in 2013. It is expected to grow at a 3-year CAGR of

50-55% to reach Rs504billion by 2016.The retail chains

face this threat head on and realize the potential in

online retailing and are reinventing their marketing and

operational strategies. Omni-channel platforms offer:

· Better customer reach. The ability to interact and

engage with tech savvy customers through as many

touch points as possible – online, mobile, tablets

and social media.

· Customized offerings .Opens up the traditional

retailers to the enormous history of customer

preferences, buying patterns and empower them to

offer personalized deals and services.

· Effective store utilization. Opportunity to turn the

traditional retailers’ biggest liability – stores back

into an asset. One European retailer, for instance,

reports that it captures nearly 5% of online sales in

areas near its physical stores, but only 3% outside

those areas.

· Faster delivery times. The ship-from-store feature

enables retailers deliver goods faster. This also helps

to reduce the shipping costs by as much as 18%

· Better inventory management. The sophisticated

algorithms can track in real time the inventory levels

and thereby impact the store markdowns.

Key aspects in implementation

Clearly, the benefits of switching to omni-channel

retailing far outweighs hanging on to age old practices.

But integrating several channels isn’t a simple task.

Retailers need to understand precisely their customer

expectations and establish a clear set of goals and

success metrics. Setting up cross functional teams

comprising visionary leadership, sales, IT and other

departments will enable seamless information exchange

and make them agile. Integrating channels would also

require IT literacy and employees fluency with the latest


technologies and gadgets. Retailers also need to provide

a complete package of pricing and product information

in real-time and across every channel. Achieving this

depends on having the right product content layer and

multichannel commerce application in place. Most

importantly, the investment needed for this transition

would be significant and hence retailers must realize the

hidden potential and must value long term benefits over

the expenditures incurred.

Figure 2 Amazon Purdue store

With Amazon recently opening their first brick-and-

mortar store at Purdue University, Indiana, the line

between traditional and online retailers is fading away,

indicating that brick-and-mortar stores are just not going

to disappear into the past, unless retailers adapt to the

changing ecosystem and keep themselves abreast of the

technological advancements.


19

When I was once asked to list the most innovative

companies in the world, I accentuated the companies

like Google, 3M, Intel, Apple and so on. These are the

most inevitable names that any person would have

enunciated, and of course none were an Indian

company. But have you ever wondered that in every

product that is ubiquitous today, like the iPods and

Google Glass, some part of it was designed or developed

in India? Another intriguing fact is that, the innovation

centres in these companies are always headed by an

Indian.

By and by the big giants abroad have discerned that

Indians have the ardour to innovate, not just the Jugaad

way but to bring in a whole new dimension of the

product-performance curve for affordable excellence.

Understanding the pertinence of innovation as a new

management paradigm in today’s fiercely competitive

world, even in areas of operations and supply chain

management, companies abroad comprehended that a

synergy has to be brought in with the emerging markets.

This is when the term reverse innovation was coined,

which drives the motto of innovate in India. When we

talk of Innovation in any field we think about Why, How

and What to innovate. Let’s think on same line for India.

WHY TO INNOVATE IN INDIA?

Reverse innovation as defined by Dr. Govindarajan, Chief

Innovation Officer at GE, is any innovation likely to be

adopted first in the developing world like India and

China and then distribute them globally(source:

tuck.dartmouth.edu/people/vg/blog). Heated bassinet

developed by GE India is an example of this. The

prominent reasons some innovative companies believe

to adopt reverse innovation can be elucidated in three

different ways. The first one is to bring the paradigm

called affordable excellence that I aforementioned. The

graph below depicts the conventional dynamic

positioning for three classes of products and services:

Table I: Graph showing the price-performance curve for

positioning products and services

Innovate In India

Operational

Excellence

Customer

Intimacy

Product Leadership

Performance

Price


As always presumed by all, high performance means

high pricing, and the graph prominently moves north

east. But disruptive innovations in India like the Jaipur

Foot defied this conventional graph to bring high quality

of rubber based prosthetic leg at a low cost, or Amul

that brought all three aspects of dynamic positioning.

Table II: Graph showing a paradigm shift in the price-

performance curve

Such examples triggered the companies in developed

markets to synergize and innovate in emerging markets

like India to get the crux of frugal innovation. The second

reason for reverse innovation, as enumerated by

Dr.Govindarajan, is the fact that a successful product in

the developed market if introduced in emerging markets

needs an altogether different strategy due to income

gap. Since most of these companies have a greater

market share in emerging markets, they believe that it’s

pragmatic to innovate there.

The third reason is India’s aspiration to develop

technology products based on Intellectual Property and

move from licensee to licensor, follower to innovator.

Estimates vary, but it is believed that 70 to 90 % of the

market value of publically traded companies is

attributed to intangible assets where IP is a major

component.

Table III: Graph explaining the concept of reverse

innovation

Source: Ocean Tomo

Having understood why to innovate in India, let us

discuss the types of innovation and how companies in

India have innovated and can further innovate in

operations and supply chain management.

WHAT TO INNOVATE IN INDIA?

Good news for bustling start-ups is that the government

is setting aside $1.6bn and Infosys is funding about

$100mn to incubate start-ups. Looking at responses

received by e-commerce many entrepreneurs are

putting forward innovative business models and people

have started putting faith in innovative start-ups.

Amul

Customer Intimacy

Operational Excellence Product Leader

Design in emerging Market

Designed in mature markets

For

Emerging

Markets

For

Mature

Markets

In need for need Reverse Innovation

Globalization Localization


21

Let us have a glimpse at examples of innovation in the

field of operations and supply chain to apprehend on

what fronts innovation can happen.

· Workflow innovation: Aravind Eye Care is an

eye hospital that uses the operational model of

McDonalds of assembly line process of

performing cataract operations on patients.

With process standardization and simplification,

and excellence in operation the organization has

achieved a profit margin of 40%

· Business model innovation: To meet customer

specifications, Dell has effective logistical

systems and information systems in place. Apart

from its own sales force, it puts in marketing

efforts to reach potential customers. The Build-

to-Order production applies just-in-time

production

· Organizational innovation: Future Group’s Big

Bazaar, known as the Walmart of India, was

founded with the vision of giving the comfort of

shopping in a traditional bazaar with a modern

outlook. It was the first mover of bringing the

concept of retail supermarket in a highly

unorganized and fragmented retail industry.

Indian food industry, known to be a gargantuan

pie, was captured by the organization with

about 94% market share in the organized retail

sector.

· Technology innovation: recent news about

Flipkart’s adoption of intelligent IT systems

drove a different level of innovation. The idea

was to create various versions of its website in

real time. With the new IT system the company

today sells more than twenty categories of

products

· Process Innovation: one of the new ideas of IBM

is a ride-along program with the objective of

getting firsthand experience of using a product

at the client’s site. This makes the logistics team

to analyse the requirements in a better way

HOW TO INNOVATE IN INDIA?

According to Forbes, truly novel ideas are said to

lead only 4% of innovations. The remaining 96%

innovations are built on existing ideas. Thus it

can be inferred that innovations can always be

incremental and need not be disruptive. It has

also been proved that while maximum

innovation efforts go into product performance,

the rate of returns are maximum for innovative

business model.

Innovation efforts:

Source: Prof Larry Kelly, The Taming of the new,

Harvard Business School Press, 2004

Innovation

Technology

innovation Workflo

w innovatio

n

Business model

innovation

Process innovatio

n

system delivery

innovation

organizational

innovation


Rate of return:

Source: Prof Larry Kelly, The Taming of the new,

Harvard Business School Press, 2004

Ways to innovate in India:

· Copy someone else’s idea. In business language

it is called as cross pollination. One of the best

ways to innovate is to pinch an idea that works

elsewhere and apply it. Henry Ford saw the

production line working in a meat packing plant

and then applied to the automobile industry

thereby dramatically reducing assembly times

and costs

· Use difficulties and complaints. If people have

difficulties with any aspect of product or service,

point to innovations. Taking the lessons from

these Indian start-ups can make your product

easier to use, eliminate the current

inconveniences and introduce improvements

that overcome the complaints

· Combine. Combine your product with

something else to make something new. It

works at all levels. Think of a fast food company

having tie up with cookery show teaching Indian

recipes. Both can come up with chain of ready to

eat food restaurants

· Eliminate. As we observe in developed countries

lot of emphasis is given in creating a brand or

premium perception of product that end up in

making product way too expensive beyond

reach of common people, whereas India can

make products which satisfy customer without

unnecessary things like too much packaging or

advertising and emphasize on quality

.

CONCLUSION

India aspires to emerge as one of the top five knowledge powers in the world and

biggest new business opportunity of the coming decade will serve the un-served

market segments. Thus bearing all the megatrends in mind stakeholders are looking

to innovate in India


23

Goods and Services Tax - One country with a single tax

regime for both goods and services. Sounds simple isn’t

it? The budget speaks about GST, the corporate world

wants it and Modi is definitely trying to implement it.

This will be one of the biggest indirect tax reforms of our

country. So what is GST? Let us have a brief look on it.

GST will subsume Central excise duty, service tax and

additional custom duties at the central level while it will

subsume VAT, entertainment tax, lottery taxes and

other indirect taxes at state level. This will reduce the

complicated tax structure India follows and reduce

compliance costs. The ease of doing business in India will

also improve. The Indian government wanted to bring

about this tax reformation decades ago but always faced

stiff opposition from state governments who felt they

would lose out on the revenue. Fortunately for the

Indian economy, the Modi government has decided to

implement GST from April 2016 for a successful ‘Make in

India’ campaign.

Double taxation will be reduced, profits will increase and

there are expectations of renewed buoyancy in the

market as there is a hope of growth in GDP between 0.9-

1.7 percent because of GST. This is good news for the

corporate but the change in tax regime demands a

change in the strategy of a company as well – especially

in its supply chain.

Warehouse Locations:

To understand the implications of GST on supply chain,

let us understand the present taxation system in India.

For example, imagine there is company manufacturing

cement named X in Bellary district which is on the

border of Karnataka. Whenever X sells goods in

Karnataka, it has to pay sales tax on the merchandise

minus the tax credit it gets for the purchases. If X plans

to sell merchandise in Guntakal, which is on the border

of Andhra Pradesh and just 50 km away, then it has to

pay Central Service Tax plus sales tax. To avoid these

taxes, X constructs a warehouse of its own in A.P. just 50

km away as interstate stock transfer is not charged CST.

Manufacturer Warehouse Distributor Shop Cost – 100 Landed cost – 130 Landed Cost – 145 Landed Cost – 155.5

Margin – 30 Warehouse cost – 10 Margin – 10 Margin - 10

Final Price – 130 VAT – 5 VAT – 5.5 VAT - 6

Final Price – 145 VAT credit – 5 VAT credit – 5.5

Final Price – 155.5 Final Price – 166

The extra warehouse involves a lot of processing costs,

employees and storage space. This will lead to additional

costs incurred by X. There is double taxation and fewer

profits.

Now let us consider a scenario with GST:

Manufacturer Distributor Shop

Cost – 100 Landed Cost – 130 Landed Cost – 145

Margin – 30 Margin – 10 Margin – 10

Final Price – 130 VAT – 5 VAT – 5.5

Final Price – 145 VAT Credit - 5

Final Price – 155.5

Effect of GST on Supply Chain


This is just a sample scenario in which we have observed

that prices decrease due to single taxation.

Depot costs also have been reduced which would

increase the profits and hence boost competition in the

economy.

Reconfiguration of supply chain:

Another scenario is where X procures raw materials

from one state but manufactures them elsewhere due

to a difference in the state levied taxes. This would be an

additional burden on the logistics part of X.

Implementing GST would enable X to reconfigure their

supply chain and change the network design. X would

locate its plant where it can procure raw materials easily

instead of worrying about taxes.

Lead time to manufacture goods would reduce which

will in turn increase the productivity and serviceability of

the firm. Inventory management of the firm would also

improve.

Also, the firm can decide where to produce depending

on the proximity of its customers and better availability

of labour and take into consideration other logistics

costs involved.

Improved Forecasting

Consider the case of Mumbai which has octroi tax

imposed on movement of goods into the state. This

increases the cost of goods consumed in Mumbai

whereas the same goods would cost less in Delhi where

no octroi tax is imposed. When both are metropolitan

cities and have similar costs, it would be easy for a firm

to forecast demand and lead to better inventory

management.

Reduced Taxation

Apart from the double taxation issue which has already

been discussed, logistics sometimes involve services

being rendered to procure the input material and to

deliver the final product to the customers. Service tax is

paid on the cost of such services. But with GST, cost of

any such services will be considered a value addition,

and the manufacturer will get tax credit for the service

tax paid.

GST’s impact on Transportation:

Indian trucks have an average of 280 km per day unlike

trucks in other parts of the world who clock an average

of 700 km. According to a study by UBS Securities, this is

not just due to roads or trucks in India but also due to an

exorbitant amount of time being spent on check posts

and toll plazas. This slow movement of trucks leads to

productivity loss. Better management of this will reduce

buffer stock, damage of perishable goods and costs. GST

would help in achieving this parameter.

A company uses different modes of transport like rail,

shipping and road. And all of them have interstate

transfers. The system in India calls for 3 different types

of taxation with different rates in each state. This

increases the complexity of doing business in India. A

uniform taxation might reduce this confusion.

Change in distribution Model

Organizations can also explore other distribution

models. They can have more hubs and develop a supply

chain strategy which will enable them to have a

competitive advantage over others. Not worrying about

taxes will help the firms innovate in their supply chain

model and distribution centers. They can also explore

various customer bases.


25

Other implications of GST

There would be increased demand for larger warehouse

spaces. Realignment/closing/opening of facilities may

result in increased short term costs which might lead to

higher prices in the short run.

Also, the current government plans to have a state GST

(SGST) and a central GST (CGST) so that the states do not

incur any loss of revenues. For interstate transactions,

integrated GST (IGST) is being implemented. This system

might lead to a few complications in the taxation

process but detailed guidelines are being laid out by the

government.

Conclusion

Thus due to GST, logistics and supply chains will see a major change. Many of the current

plans of manufacturing firms will change which include procurement, distribution and

warehousing decisions which are currently planned based on state level tax avoidance

mechanisms instead of operational efficiencies. These will be reorganized to achieve

efficiencies of scale, location and other relevant factors.


Imagine yourself in the late 1980’s. Mr. Narasimha Rao

is the Prime Minister and India is passing through

difficult financial strains. This situation is not new to

India, ever since independence we have been fighting

to keep our heads above water, to feed the large and

growing population, to undo the damages done by

hundreds of years of foreign rule which were marked

by systematic efforts aimed at destroying the ancient

Indian culture.

The British started the industrial revolution in the late

1700’s / early 1800’s, and, as they say, the rest is

modern history. The industrial way of life has been

adopted as the SOP (or the Standard Operating

Procedure) to bring happiness to the largest number of

people and increase common good. With the USA ,

other parts of Europe and Asia ( typically , Japan )

following Britain the new way of life with the industrial

economy as the engine of growth and the fulcrum

around which modern life was designed and lived , was

firmly in place . Urbanization , marginalization of

agriculture , slow but sure death of handicrafts , growth

of money centers such as banks were the key

developments characterizing the new world .

Amidst all this frenzy of activities India was slowly

realizing that its ways of yore – a very strong agriculture

base but weakened by poor attention paid to the

infrastructure, a low industrial base left behind by the

British as a legacy, a strong spiritual cultural mooring

finding itself unable to tackle and address the

requirements of modern ways of living – were not

adequate for becoming a global power once again. The

British rule left India impoverished and weak, as can be

seen in the figure below which shows the percentage

contribution to world GDP by countries and regions. As

can be seen India, which used to be at the top with

China in the 1500’s to 1800’s has declined

steeply in the 1800 ‘s till date . The decline was steepest

in the 1750’s to 1950’s period when the British ruled the

country. However since independence Indian leaders

have worked to build a new India.

The five year plans that were the hallmark of the

Nehruvian era paid a lot of attention to how India can

develop industrially. Nehru himself was a great believer

in the industrial advancement of India , and he

envisaged an industrially advanced India as a basis for

overall economic prosperity , removal / alleviation of

poverty and increased welfare measures which will

provide a degree of comfort and succor to the

impoverished masses of Indians at the “ bottom of the

pyramid “ .

Industrial contribution to the GDP started to improve

substantially since those days and the figure below

gives an idea as to how India has marched on its

journey to becoming a global industrial power in the

last few decades.

The Quality Revolution in Indian Industries


27

The period from 1980 onwards has been one of a

qualitative difference in the reasons for the growth

of the industrial and services sectors. While the

driver of growth prior to this period was mainly new

investments in new ventures and expansion of

existing facilities, the period after this includes

another component – improvement in the overall

output due to improvements in productivity and

quality triggered by the “ Quality Movement in India

“ .

As is well known the quality revolution in the world was

triggered by the visit of Dr Edwards Deming to Japan in

1950. One of the companies which decided to follow the

path shown by Dr Deming was the Toyota Motor

company. Beginning with the new concept of lean

manufacturing based on reduction of wastes , this

company , over the next thirty years , set the tone for “

quality production “ over “ quantity production “ . The

significant gains that Toyota demonstrated led others

like Dr Juran, Crosby , Ishikawa , Kano and others to

promote “ quality based production “ which later

metamorphed into “ quality based activities in a

company “ ( or total quality , which implied application

of quality not only to production related activities but

also to other “service “ activities in the company such as

finance , marketing , HR etc ) . The term TQM (Total

Quality Management) came to signify the changed

quality scenario – everyone in a company was now a

contributor to quality. This was also a much needed

response to the increasing competition due to the

ubiquitousness of technology , the growing availability

of information leading to many countries starting up

technology based production activities which were

earlier restricted to a few who hoarded and used to

advantage their ownership of such technologies .

Owing to the “ license and permit “ raj in India which

largely prevailed in the period prior to 1991 Indian

industry did not pay much heed to the developments in

quality in other parts of the world . A classic example is

of the automobile industry where production saw a

jump after 1990 when liberalization was introduced by

the government led by Mr Narasimha Rao (1991).

Key leaders of Indian industry which included

the likes of Mr JRD Tata , Mr Nani Palkhivala , Mr Venu

Srinivasan , Mr Suresh Krishna and others , were aware

that one day India would have to face international

competition and open its doors . The policy of

protectionism wouldn’t work, and, in any case, it was

totally antithetical to the ethos of India and its hoary

cultural traditions which was one of universality in the

truest sense. These leading industrialists made periodic

representations to the government to remove the

“license and permit “raj which was characterized by

corruption, inefficiency and a low growth paradigm.

Simultaneously they also prepared for the day when the

doors would open.

One of the earliest efforts made by such industrialists

was to work with the JUSE (Union of Japanese Scientists

and Engineers) which body was spearheading the TQM

movement in Japan. In one such significant event Dr

V.Karishnamurty, the then Chairman of BHEL led a

delegation of industry leaders to Japan, under the aegis

of the JUSE, to see for themselves the advancements in

TQM which had led to a significant improvement in

Japanese industry, helping them to become world class

leaders in many industry segments, most prominently,

the world auto industry. This visit, which took place in

1980 was a precursor to the adoption of the TQM and

the larger quality movement in the Indian industry. The

CII, under the leadership of Mr. Tarun Das then, formed

a body to drive TQM, to be headed by Mr Janak Mehta.


This seminal event triggered off a huge quality

movement which has resulted in several Indian

companies becoming Deming Award winners, model

TQM practitioners and leading quality movers.

Beginning with the modest effort of starting the quality

circles movement in 1980 under the guidance and

leadership of Mr Udupa, then GM in BHEL, the TQM

movement began to take up significant steps to involve

the bulk of the key industrial organizations in the TQM

way of doing things. The TVS group was one of the first

to adopt TQM practices in their companies followed by

many others including the Tatas, the AV Birlas, many

PSU’s such as BEL , NTPC and others . Thus when

liberalization came about in 1991 some indian

companies were ready to take on international

competition head on .

Introduction of TQM made Indian companies open up

their minds and practices to the best quality practices in

the world, to attain “world class “ status , to compete

with the best in the world . TQM practices improved

operations of companies significantly leading to higher

production, improved productivity and efficiency and

lower costs. So much so that Tata Steel achieved the

distinction of becoming the lowest cost steel producer

in the world in the late 1990’s.

TQM was followed by Business Excellence, driven by

the introduction of the Malcolm Baldrige model in the

USA in 1987. This model was introduced by the US

President to enable American producers to regain the

markets lost to the Japanese due to TQM. Soon

enough the American industry re-asserted itself

through adoption of the Malcolm Baldrige inspired

methodologies which resulted in “excellence “ in all

spheres of operations of a company .

In essence movements like TQM, Business

Excellence help companies to achieve overall

and detailed excellence in following ways:

· Involving all employees in excellence !!

· Deciding and communicating excellence

driven goals across the organization so

as to develop synergy !!

· Developing “ Best Practices “ using thought

processes , experimentation , innovations and

sheer brilliance of the mind to drive

performance !!

· Creating a performance orientation which

encompasses the whole organization

through practice of Total Quality and

Excellence !

India has only been on this quality journey for some

20 years and thus has a long way to go. However the

results of such a journey are clearly visible in that

significant chunks of the Indian industry are

internationally competitive. Moreover the “Make in

India “slogan that has been now given by the PM will

demand such quality based practices if India is to be

the new cradle for international manufacturing.

Indian industrialists have a responsibility and need

to make a commitment to adopt more and more

quality and excellence practices to make the country

once again become the beacon to the entire world.


29

Today’s procurement managers have to deal with the

higher levels of uncertainties in product demands, and

exchange rates. The recent depreciation of rupee by

more than 10 % in less than one month has been a

wakeup call to many industries. The mismanagement of

these sourcing related risks can escalate operations

costs and decrease profits. Ideas such as supplier

diversification, flexibility have been suggested to

manage certain types of supply chain risks. In this

article, we will discuss how supply contracts can be used

to mitigate the risks associated with uncertain demand.

Managing demand risk

Options Contract

Nowadays, options contracts are becoming quite

popular. In this contract, a small portion of the product

price is paid upfront to get commitment from the

supplier to deliver certain number of units. This payment

is referred as reservation price and is non-refundable

and hence is lost if the units are not procured. This

however gives the right to buyer to purchase units up to

the agreed upon purchase quantity by paying the

additional exercise price. There is however no binding

on buyer to purchase all the units if demand turns out to

be low. Again, this decision problem can be formulated

as newsboy model with overage cost as reservation

price and underage cost as the difference between

option and long-term contract price.

Example:

Hewlett Packard (HP) has used this portfolio contract

approach to procure electricity and memory products.

Long term contracts and options contracts are used to

procure around 50 % and 35 % of the requirement.

Remaining 15 % of the demand is procured from the

spot market.

Managing Demand Risk

Demand for short life cycle products such as fashion

goods, movies is typically highly uncertain. Also, often

the interests of the supplier can be different from the

buyers interest. As a result, the optimization of the

individual interests results in double marginalization and

limits the members from earning more profits.

Example:

Video rental industry is an example such incentive

problem. In the 1990s, studios such as Disney sold

copies of their newly released movies to the retailers

such as Blockbuster for about Rs 3600. The retailer used

to rent the videotape to the customers for about 180 Rs

per rental. Thus, the retailer used to breakeven only

after 20 rentals. Demand for new movies is uncertain,

the retailer used to carry very few video tapes to reduce

liability risk and used to loose many customers during

the release time when the demand is the highest.

Careful analysis suggested that it would cost the studios

around Rs 180 to produce one additional videotape. If

we consider the entire supply chain consisting of the

studio and the retailer as one entity, then the breakeven

becomes only one rental. So, if the studio sold the tape

at less price, then retailer would be happy to stock more

tapes and thus can earn more revenue and profits.

However, this option reduces profits for the studios.

This poses an interesting question. Can some contract be

designed so that there is incentive for both the studio

and the blockbuster to participate to earn more profits

for both.

Managing Procurement Risks Using Supply Chain Contracts


Revenue Sharing Contract

Under a revenue sharing contract, the studio will sell the

videotape for around Rs180 but are also entitled to the

rental revenue share (of about 50%). This arrangement

helped the firms in the entertainment industry to earn

more profits. This contract design problem can be

formulated as a stochastic non linear optimization

where the studio can choose the selling price and rental

revenue share to maximize its profit subject to

constraint that the block buster gets something extra

compared to its current profits. This becomes win-win

situation for the buyer as it can not only earn more

money but also may reduce liability.

Buy Back Contract.

Another mechanism to align the incentives is a buy back

contract. In this contract, the seller agrees to buy back

unsold products from the buyer for some agreed on

price. This reduces the buyer’s liability risk and

motivates him to order more. This type of contract can

also be designed by solving the optimization problem

similar to above one and by choosing the wholesale

price and buyback price.


31

Opera: How did you come up with the team

name?

Our team name “Strikers” is an indication of the

exact balance of pace, force and time that is

required to hit the target, and of course, strike while

the iron is hot!

Opera: What were the different stages of the

competition?

The theme of the competition was “Ideate,

Innovate, Implement”. There were 2 phases to the

competition. The first was the Campus Round which

consisted of 3 teams being selected from the

campus based on preliminary solution submissions.

From among these teams, the Campus winner gets

selected by a Marico panel visiting the campus. The

2nd

phase is “Innovation Immersion”, where the

Campus winners will work on projects with the

Marico Innovation Foundation, post which a final

winner will be declared.

Opera: What was the case study about?

The case study was about New Product

Development and Launch- specifically, planning the

procurement of packing materials and their

inventory for new product launches. Two products

launched in the last year faced substantial issues in

these terms. The main question to be addressed was

to analyze these two launches and taking into

consideration the challenges, design a suitable

inventory, service level and write-off minimization

strategy for another new product being launched

this year.

Opera: How did you approach the case? What was

the framework used? How did you feel your

team’s approach was different from the other

teams?

As the case was short and very little information

was provided, we tried to relate all the scenarios to

real time FMCG supply chain processes. After

discussing a lot about the case among ourselves and

with some external guidance we were able to make

up for a lot of missing information in the case. We

further applied some of the standard models in

inventory management like the Kent Linford model

to find a solution to the case. But as the case was

related to NPD, we realized that the standard

models will not work. Therefore we developed a

new model based on linear programming to fit to

the particular case. All through, we were sure that

the solution to the case did not lie completely in just

generating inventory models. There by we came up

with certain qualitative steps that Marico should

adapt to help solve the problem in hand. We believe

that these improvement ideas that we suggested

did give us an edge over other teams, whose

solutions were completely based on inventory

models.

Opera: What do you think was your biggest

learning from this competition?

The case was very ambiguous and many teams had

quit early. We leveraged on all the knowledge that

we gathered during our internships and rather than

splitting the sections of case among us, we had

gone through each and every aspect of the case

together rand validated it based on our knowledge.

RUBAROO


We also consulted some of the industry experts and

also some PHD students. Though we arrived at a

solution we were not absolutely sure about it. But

since all of us worked through entire case, we had

good consensus on the solutions that we arrived at,

which actually boosted our confidence. As the

judges told us finally that it was a real life scenario

and Marico does not have a solution to it too, we

realized that the competition was not just about

solving the case.

Opera: Which concepts related to Supply Chain

domain was helpful?

Some knowledge on over all functioning of FMCG

supply chain was needed, as the case was were

ambiguous. Concepts related to MRP, MPS, and

Inventory models were very helpful. Apart from this

knowledge on supply planning for NPDs was needed

for which we had to consult industry experts. This is

because there is no historic demand information to

plan for raw material procurement for NPD and

hence it is a challenge faced by every company.

Opera: What was the single biggest challenge

faced? How did you overcome it?

One of the challenges we faced was in the initial

phase of the competition. The case was open-ended

and ambiguous. We had to understand the case,

think of our own assumptions and move forward.

The already available inventory models couldn’t

justify the given case because this case involved new

product development. The learning was that when

we face such ambiguous cases, working together on

different angles in the beginning phase would help

narrow down on the actual issue and get a better

understanding of the problem.

Opera: Any interesting fact about the competition

you would like to share with us?

Though the case questions in the competition were

thought to be aligned towards quantitative side, the

judges expect a quantitative plus a qualitative

solution to the questions. Do not restrict the

solution to just inventory models and SCM concepts;

apply a holistic approach in the solution. Also,

sometimes the case given to different campus

within the Ops field is the same, and if their campus

round has already taken place; talking to friends in

these colleges might be of a help.

Opera: What kind of homework you generally

need to do to prepare for such Operations related

competitions?

We need to be well versed with the various Ops

related concepts taught in the class. Apart from the

course learning, any on-ground experience during

the internship would be an added advantage. Talk

to your colleagues if anyone worked on similar

problem during their internships and the approach

that they took. Talking to seniors and alums would

help the team gain a better understanding of the

case.

Opera: Any advice you would like to give to the

aspirants who would like to excel in such

competitions?

For any corporate competition, go in with a highly

analytical mind and a research-intensive approach

in the initial stages. Determine the root cause(s) of

the problem and back it up with strong research,

facts, data and analysis. Next up, have one (or at

the most, two) “big idea/ solution” around which

your entire solution should be centralized. Your

research should drive you to this idea in a smooth,

logical flow. Make sure to tie everything up to the

solution and not leave any loose ends. Finally, a

comprehensive timeline to roll out the solution will

show vision on the team’s side to see the bigger

picture as well as that all angles have been covered.

Score!


33

During International Exchange and Summer Program

2015, students from SJMSOM, IIT Bombay and visiting

students from University

College London visited

numerous companies,

located in Mumbai and

Pune.

The agenda of these visits

were to understand the

supply chain and

operations of these

Multinational companies in

Indian Business context, to

know the best practices

followed in these industries

and have an interactive

session with the

management to learn and

discuss current challenges

faced by the company

and its strategy to

overcome it. The

contingent, comprising

both in-house students

from SJMSOM along with

foreign MBA students from

UCL, visited global

companies like Times of

India, Siemens, Johnson &

Johnson, Reliance Energy, Tata Motors, Godrej (Interio

Division) and Mahindra & Mahindra Tractor Division

in the 2 weeks period of Summer Program.

The students got an opportunity to witness production

lines and operational

process of various industry

sectors which included

Print Media, Consumer

Goods, Heavy Industry

Machine Manufacturing

and Energy Sector and

Automobile Sector. The rich

interaction with the

leadership, during this visit,

also gave them an insight

on the operational

challenges and the industry

growth opportunities as

seen by the management.

The students had a great

learning experience from

these Industry visits and

interactions, where they

could relate theoretical

knowledge from the course

to real world operations in

the global companies.

These visits have surely

helped them in

understanding the way in

which Indian companies work.

Industry Visit during International Summer Programme


Early days of November embark upon the B-school fests in the country. Leagile was one such event where teams from various colleges of the country came to participate. We, “The free thinkers” were one such team who stepped into IIT-Bombay with not even a slightest hint of how the task would be. The volunteers were constantly on their toes and we were welcomed by one such volunteer with a smile. The Leagile event started at 10.30 am and all the teams geared up to show their best. The teams consisted of candidates from various prominent bschools viz. SIIB, IIM-K, NITIE, Great lakes Chennai, NMIMS Mumbai, Sydenham, IMT Ghaziabad, Welingkar, ISB Hyderabad. All the shortlisted teams were provided a case study on Amazon’s most talked about Prime Air concept.The topic for the case was upbeat with the current market scenario. All the teams presented their opinions and solutions to combat the future challenges. The second round consisted of a case study in which Kandivali was the warehouse from which inventory was to be supplied to few cities and the teams were supposed to find out the most feasible routes. Cost optimization was the primary goal.This round made all the teams to crunch their heads to find the best solution.

Third round required teams to finalize a layout and design the final layout of a mall satisfying the given set of conditions that were mentioned in the caselet.

Day two started with each team being given a caselet in which details of two paint manufacturing companies were given. The demand of two given

cities was to be met considering the maximum inventory storage level and least transportation costs. Yearly forecast of two companies was provided from the month of May to Dec. Teams had to finalize the best possible estimate of every month .Each month was supposed to be evaluated in 20 seconds. The final round was a physical simulation game which needed high team coordination and strategy

formulation. The cumulative results were announced in the evening. IIM-K came up as winners with SIIB grabbing the second position.

The caselets provided needed a good blend of concepts and impromptu thinking. With so many events going around, one could actually feel the energy of the SOMites around. The event was a splendid experience and also a memorable one!

Memories of LEAGILE: 2014

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