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Shared information between supply chain partners and customers can be fully leveraged through process integration. The co-operation in the supply chain is becoming more common for focusing on managing competencies and contracting out all other actions. Today a greater faith on suppliers and alliance partners has become critical. In this regard, strategic alliances are an instrument for combining co-operation and competition in corporate strategies, writes Harinarayanan S Nair, General Manager – Strategic Planning & Business Development, Signode.

Current supply chains are only integrated up until the suppliers and customers. It does not progress beyond the next level to reach the supplier’s supplier and customer’s customer! Can we form a supply chain alliance integrating members from upstream - downstream - convertors - consumer segments as a pull strategy? Most definitely! This article discusses a possible Integrated Supply Chain (ISC) community.

The key criteria here is identifying high impact material flow tracks and networks, the rate of inventory flow, critical paths, selection of members for each track within the chain, score cards, SOPs, IT platform and communication plans. The fundamental principle here would require each constituent member to be aware of ‘what they are creating and what they are getting’. Additionally, who pulls and controls the chain is also especially important. I am pleased to present a cost-vs strategic advantage grid for defining the business and social values for the community. Here, the strategic focus is on the top 3 quadrants (3x3, 2x3, 3x2). In this material flow model, packaging, logistics and inventory (cost vs value) is monitored at operational, tactical and strategic levels.

This model also presents a mechanism to review the behavioural competencies of members via a 360-degree evaluation. The alliance can be effectively monitored, once the supply chain infrastructure is digitalized and can be managed by a hosted command center.

OPERATIONAL INITIATIVES

Strategic sourcing: For economies of scale, it is wise to consolidate volumes at the supply chain community level for raw materials/packing materials (RM/PM), logistics and MRO in general (maintenance, repairs & operations). Beyond the purchasing decisions, there also exists a strong case to evaluate the inventory levels and cost of storage/ movements in an alliance. 

Logistics engineering: Explores packaging & logistics re-design in an integrated supply chain community!

  • Logistics unit: Higher logistics unit size, bulk packaging & palletized logistics are the steps in this direction. Industry still uses large quantities of jungle wood for Pallets/ skids/crates currently on a single use basis and this should change. FIBC (flexible intermediate bulk containers) bags and container liners are two best practices in bulk material handling for agro commodities, chemicals and minerals
  • Returnable packaging service models should evolve with clear contractual arrangements at both the ends. Supply chain managers should check for a right ratio of returnable: expendable packaging and must use velocity (turns/year) and life (number of cycles) as critical performance measures
  • Pack re-engineering takes an integrated view of transit packaging-logistics decisions. Without the clear logistics visibility, outside the factory gate, industry tends to overdesign and keeps a much higher safety margin than required. With an improved logistics infrastructure across the network, we should be able to optimize the packaging cost
  • Multi-modal logistics: We should look at containerized, multi-modal logistics for cost advantage here, looking at our large coast lines and rail networks connected by roads for the first and last mile. We should be able to give an overall positive impact, comparing logistics cost in terms of freight, transactional costs, transit days and inventory.

Yield Improvements: Yield losses are always budgeted in individual cost folders due to challenges beyond their span of control. Once we have visibility of the root cause analysis for these losses and controls in an extended supply chain, it is possible to improve these yield levels. A few examples here are:-

  • Product damage due to handling / transport concerns.
  • Commercial security, calibration and weighment tolerance concerns
  • Packaging failures in supply chain
  • Pilferage /Shrinkages in supply chain

Yield losses are one of the largest hidden costs in the supply chain and there is a very clear scope for improvements, once we have an integrated view of the impacts.

TACTICAL INITIATIVES

Transactional efficiencies primarily address the productivity & manpower cost concerns. Multi-vendor purchase orders, manual weigh bridges and manual data entry, paper-based invoice generation, physical inspection and maintaining manual records and all the other manual logistics transactions are the few low hanging opportunities for improvements. Transactional costs are considered one of the major hidden costs in logistics and this becomes truly relevant once we replicate these inefficiencies across supply chain networks. Material flow in-lining and automation should be evaluated in packaging, warehousing, and logistics (both inward & outward) with an extended network. Artificial intelligence tools & robotics can offer a large canvas for improvements, especially on forecasting and demand planning.

Collaborative logistics: Logistics asset utilization (back loads for trucks, turnaround time challenges at both the ends, capacity utilization) and budgeting for traffic spikes across the networks are few key challenges today. Once we have a shared logistics cost folder, industry can collectively work towards improved truck utilization, turnaround time, back load integration & warehousing costs within the network. Back load integration is a clear opportunity here, where freight models can be configured on a fixed and variable cost model than a fixed route-based cost model, which is always market driven.

Containerized coastal – rail centric multi-modal logistics with road connectivity at first and last mile is a scalable logistics model for India, looking at our large coast lines and hinterland distances. This may call for setting up handling and warehousing infrastructure across key traffic minor ports/ railways hubs and the industry can take a collaborative view of the infrastructure development, once we have a supply chain alliance in place. Supply chains can collaborate here for improved capacity utilization in a closed loop logistics network.

Additionally, there is a strong business case for an optimum mix of dense and voluminous loads in order to further improve on cost efficiency. Shared logistics asset management is another large scope for collaboration, once we can achieve some level of standardization of assets and handling processes. Few examples here are pallets, intermediate bulk containers, forklifts, trucks, and warehouses.

Inventory & Real time inventory visibility across the supply chains will help to reduce inventory levels and improves response time to markets. An integrated track & trace with logistics management systems (IT-LMS) platform connecting processes, logistics assets and inventory is way forward. This material flow tracking technology platform using automatic identification & data capturing (AIDC) technologies and AI tools is well placed in the digitalization strategy.

STRATEGIC INITIATIVES

Sustainability- Packaging waste in a circular economy: Packaging waste recycling in a B2B and B2C business, greenhouse gas emissions and water conservation are the key supply chain collaboration opportunities and we will keep the focus on plastic waste recycling in this article. India generates an estimated 21,000 tonne of plastic waste per day and recycles 60% of it. Global recycling percentages stand at 9% with a Landfill: Incineration: Recycling ratio for plastic waste of 79%: 12%: 9%. Since the waste is not segregated in India prior to collection, a major share goes towards landfills along with other waste, resulting in plastic litter clogs in public spaces and water bodies.

We can segment the action plans in to four key initiatives: 

Organized waste flow: There are clear gaps in the current operating model:

  • Conflicting technologies – Recycling Vs Energy routes: Governments should prioritize recycling approaches that align with circular economy goals and energy models should be considered as an alternative.
  • Traceability of waste from source to consumption: Currently there is no transparency of waste supply chain processes and transactions. The industry should work alongside technology providers in establishing traceability from source to consumption in every cycle.
  • Supply chain QCD advantage: We should evaluate line items for correction — the leakages in the first mile from source and price realization in recovery facilities, segregation, and grading SOPs for preparing the waste and freight disadvantage for recycler dispatches from recovery facilities.
    • Going forward, MRFs can do both backward and forward integration, thereby performing both first mile collection and recycling functions.
    • Recycling parks can be established at a state level, targeting improved price realization for waste, logistics cost advantage and improved employment opportunities.
    • Use of technology platforms: The industry should digitalize the waste flow from source to consumption to meet the circular economy process standards. There exists several digitalization technology providers that are willing to operate in a hosted service model.

Production Innovations: Consumer brands should go beyond their current product baskets and should explore new product-markets. Most virgin plastic applications can be replaced by recycled plastics and the industry should actively collaborate with the end-users to drive this. Additionally, there exists a window of opportunity to move up the value chain that will improve better price realization for plastics. Some examples include:

  • HDPE /PP plastic pallets is a large business opportunity where consumer brands can collaborate with recyclers and pallet makers/pooling companies to convert from wood to recycled plastic pellets.
  • PET sheet applications in thermoforming/ Blister packaging applications and furniture /Solar frame. Also, there is a large pool of engineering plastics applications too exists.

Green alliance: The industry can address most of the change management challenges, only when all the stake holders are held together by a set of common goals like UN-SGDs. Few of the green marketing and alliance opportunities include:

Extended Supply chain (ESC) Alliances: Here, the brands collaborate with their customers, competitors and suppliers in the supply chain. Some examples are Pet Packaging Association for Clean Environment (PACE), Action Alliance for Recycling Beverages Cartons (AARC), Aluminum Beverages Can association of India (ABCAI).

Integrated Supply Chain (ISC) Alliances: Here, the supply chain boundaries can be extended to next 2-3 levels to include the suppliers’ supplier and customers’ customer network.

To establish this, the key plastic waste generators and end users must come together to promote R&D for new products. Consumer brands must go beyond their supply chains and collaborate with industrial segments to design and implement new applications.

CAPITAL EFFICIENCY

Organizations may prioritize capital efficiency over cost efficiencies and these efficiency improvements projects should be ideally asset light from a cash flow perspective. The capital projects should have a strong business case and an acceptable payback period. Businesses will always prioritize growth investments that are linked to their production volumes and will prefer an outsourced service model for non-core activities. Technology providers and logistics providers should encash opportunities and should place outsourced service models with process ownership. Industrial leasing business is large opportunity in India on a strong win–win value proposition for all the stakeholders, looking at the value to unlock in supply chain.

Capital costs can be taken on a finance or operating lease at an acceptable IRR levels. Alternatively, operating cost of an existing operation can be compared with the proposed lease service model. In the lease proposal, we can look at the breakeven NPV for an acceptable interest level for the contract period. The interest rate can be linked to credit rating,Marginal Cost of funds based Lending Rate (MCLR) for banks. The period can be linked to the payback period or economic life of the asset, whichever is smaller.

Outsourced lease service model with capital investments:

Proposed (CAPEX + OPEX) < current OPEX

General purpose equipment, assets which are mobile and can be re-located are well qualified for lease models – Forklifts, AGVs / Cobots, Generators, WHs, trucks are few examples of supply chain assets here.

ISCM PLATFORM – A PULL STRATEGY

Finally, we need to connect all the links in the supply chain for an ISC alliance using a digital platform. Let the last mile segments take the lead here as a pull strategy! A pull strategy will be more effective in this context, rather than a push strategy, especially while integrating a 5 - 6 layer supply chain structure with a large community base of members. 

The challenge here lies in identifying the key measures with their impact score and clear visibility to all the stakeholders in the supply chain community. The digitized ISC alliance should be backed up by a centralized hosted command centre for real time monitoring and exception management. Once we are ready with the high impact material flow tracks in thesupply chain network with the right process designs and SOPs, we are ready to move forward….


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Perspective
September - October 2020

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