Operation Management & Supply Chain Management in Philips India Final-smu

PROJECT REPORT ON OPERATION MANAGEMENT & SUPPLY CHAIN MANAGEMENT IN PHILIPS INDIA

SUBMITTED BY: Ms. Pooja Tandon REGISTRATION NO.: 200721956 PROGRAM NAME: PGDBA (OPERATION) WZ-271/ B-1, Street No. 18, Krishna Park Extn. NEW DELHI -110018

SYMBIOSIS CENTRE FOR DISTANCE LEARNING ENROLLMENT 2007

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NO OBJECTION CERTIFICATE This is to certify that Ms. Pooja Tandon is permitted to use relevant data/information of this the Operation Management & Supply Chain Management In Philips India for her project in fulfillment of the PGDBA

(OPERATION) Program.

We wish her all the success.

Mr. Abhishek Yadav Operation Manager Philips India

Place: New Delhi Date: 24.10.2011

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DECLARATION REGARDING ORIGINALITY This is to be given by the learner and the supervisor (guide) indicating that this project work is original and submitted for the first time. (C) DECLARATION BY THE LEARNER This is to declare that I have carried out this project work myself in part fulfillment of the PGDBA (OPERATION). Program of SCDL. The work is original, has not been copied from anywhere else and has not been submitted to nay other University/ Institute for an award of any degree/diploma.

Place: New Delhi Date:

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CERTIFICATE OF SUPERVISOR (GUIDE) Certified that the work incorporated in this Project Report “Operation Management & Supply Chain Management in Philips India” submitted by Ms. Pooja Tandon is her original work and completed under my supervision. Material obtained from other sources has been duly acknowledged in the Project Report

Place: New Delhi

Abhishek Yadav

Date:

Signature of Guide

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ACKNOWLEDGEMENT I want to acknowledge the help provided by employees of Philips Electronics India Limited. The precious inputs provided by them have helped me in compiling this report. As well as I want to thank all my friends and colleagues who helped me in this working. I express my deep-hearted thanks and gratitude to all of those who helped me in this Project.

Place: New Delhi

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TABLE OF CONTENTS S.No.

Topic

Pages. No

1.

Introduction

1

2.

Objectives and Scope

15

3.

Limitations

16

4.

Theoretical Perspective

17

5.

Methodology Procedure of Work

39

6.

Analysis of Data

40

7.

Findings Inferences and Recommendations

81

8.

Conclusion

83

9.

Summary of the Project Report

85

10.

Annexure

87

I. Proposal II. Guide’s Resume III. References

87 89 91

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INTRODUCTION PHILIPS AT GLANCE Philips in India is part of Royal Philips Electronics. As one of the nation's most wellknown and well-loved brands, Philips is a part of practically every Indian's life. Philips products find a use in virtually every aspect of daily life - at home, at work and on the move. Today, Philips stands as a source of reliable and innovative products that enhance the quality of consumers' professional and personal lives. Philips India was recognized by Business world Magazine as The Most Respected Company in India in the Consumer Durables Sector for 2002. This award was based on a peer perception survey among 584 senior managers of the corporate world conducted by Business world Magazine and the India Market Research Bureau. Philips India Limited – Fast Facts Business: 

Manufacture and sale of audio and radio



Equipments, components, amplifiers,



Electrical lamps, lighting fittings,



Accessories and medical apparatus

Manufacturing Facilities: 

Calcutta, State of West Bengal (Eastern India)



Thane, State of Maharashtra (Western India)



Pune, State of Maharashtra (Western India)



Salt Lake, State of West Bengal (Eastern India)

MAJOR COMPETITORS Radio sets, tape recorders: 

BPL Sanyo Technologies Limited 1



Akai India Ltd.



Samsung India Pvt. Ltd



Maharashtra Electronics Corporation Limited



Videocon International Limited

Television receivers: 

Akai India Ltd



Videocon International Limited



BPL Limited



LG Electronics India Ltd.



Onida Saka Limited



Samsung India Pvt. Ltd.

Lamps: 

Mysore Lamp Works Ls Limited



Bajaj Electrical Limited



Sylvania & Laxman Limited



Surya Roshni Limited



Crompton Greaves Limited



HMT Limited

Electronic components: 

Videocon International Limited



Permanent Magnets Limited



Tata Keltron Limited



Bharat Heavy Electrical Limited 2



technical collaborations:



N.V. Philips's Gloeilampenfabrieken, Netherlands

Philips Electronics N.V. MISSION We improve the quality of people's lives through the timely introduction of meaningful technological innovations. VISION In a world where technology increasingly touches every aspect of our daily lives, we will be a leading solutions provider in the areas of healthcare, lifestyle and enabling technology, aspiring to become the most admired company in our industry as seen by our stakeholders. VALUES •

Delight customers

•

Deliver on commitments

•

Develop people

•

Depend on each other

BRAND PROMISE Our brand promise is 'sense and simplicity'. It encapsulates our commitment to delivering products and solutions that are advanced, easy to use, and designed to meet the needs of all our users, wherever in the world they may be. STRATEGY We will: •

increase profitability through re-allocation of capital towards opportunities offering more consistent and higher returns

•

leverage the Philips brand and our core competencies in healthcare, lifestyle and technology to grow in selected categories and geographies 3

•

build partnerships with key customers and suppliers, both in the business-tobusiness and business-to-consumer areas

•

continue to invest in maintaining world-class innovation and leverage our strong intellectual property position

•

strengthen our leadership competencies

•

drive productivity through business transformation and operational excellence

HISTORY Philips started operations in India at Kolkata (Calcutta) in 1930. Established as “Philips Electrical Co. (India) Pvt Ltd”, the company comprised a staff of 75 and was a sales outlet for Philips lamps imported from overseas. In keeping with the Philips philosophy of promoting the industrial development of emerging economies, Philips India set up its first Indian lamp-manufacturing factory in 1938 in Kolkata. Subsequently, Philips decided to produce radio receivers in India to make this product readily and widely available to the Indian consumer. In 1948, after the Second World War, Philips started manufacturing radios in Kolkata. The first valve-based Philips set was well received by the consumers. This was a major turning point for Philips India, and marked the beginning of the company's subsequent growth in the world of electronics. In 1957, the company is converted into a public limited company, renamed “Philips India Ltd” and in 1959, a second radio factory is established near Pune. In 1963, Philips invents the compact audio tape cassette and sets a global standard for tape recording that has never been altered since. India gets exposed to this Philips invention. In 1965 (3 April), the millionth Philips radio is manufactured in India. In the same year Philips pioneers the concept of son-et-lumiere shows in India with the installation of such a lighting and electro-acoustic system at the Red Fort in Delhi. In 1970 a new consumer electronics factory is started in Pimpri near Pune. Come 1982, Philips brings colour television transmission to India with the supply of four 4

outdoor broadcast vans to Doordarshan during the IX Asian Games. The company also completes a prestigious turnkey project by handling the lighting and electro-acoustic installations of stadia built specially for the IX Asian Games. In 1983, Philips launches the Compact Disc and revolutionizes the way the world listens to music. In 1985, Philips inaugurates its consumer electronics factory at Salt Lake, Kolkata. 1993 sees Philips launching its domestic appliance business in India and in 1995 Philips introduces compact fluorescent lamps into the country. In 1996, the Philips Software Centre is established in Bangalore. In 1998, Philips launches Flat Televisions and CDrecorders - both firsts in India. As is seen, throughout the 1900’s Philips continued to bring the Indian consumer new and innovative products backed by the latest technology and bearing the renowned Philips stamp of quality. MARKET From the simple to the sophisticated, Philips has traversed great ground. It has been brightening up people's lives the world over since 1891 and the lives of Indians since 1930. For over 110 years it has led the way, setting new standards and pushing technology to greater heights. Philips exudes confidence as is captured in its mission statement: "In 1891, we lit up the world. Today, we continue to create a better one. Tomorrow, there's no limit to what we can do." Philips understands only too well that translating an invention to a product that people can access is what counts. Throughout the twentieth century Philips has continued to improve people's lives with pioneering innovations such as the everyday television, medical X-ray equipment, the ubiquitous transistor, integrated circuits and optical storage technology.

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The Philips heritage is its understanding of how people experience technology. Today, in the digital era, Philips is committed to building upon this heritage to make things better for people all over the world. In over 70 years in India, Philips has grown into a company that, today, employs over 4,500 people in seven factories and 35 offices around the country. The company's activity levels in 2003 were over Rs. 23 billion. It's a leader in lighting, consumer electronics, semiconductors, domestic appliances, personal care products and medical systems and has an unmatched range of internationally current products backed by superior design and technology. ACHIEVEMENTS Philips India was recognised by Business World, magazine, as 'The Most Respected Company in India' in the consumer durables segment in 2002. The award was based on a peer perception survey among 584 senior managers of the corporate world and was conducted jointly by Business World and the Indian Market Research Bureau. Philips India was also selected as one of the Top 25 Employers in India by the Business Today - Hewitt Survey in 2003. Amongst 220 organisations that were evaluated, Philips India was singled out for distinction on the company brand, freedom of work, recognition of performance, open and transparent culture and fair and equal opportunities. The Philips Software Centre (PSC) in Bangalore was also placed in the top five in the Business World - Grow Talent 'Great Places to Work' survey. The Economic Times - Brand Equity survey of India's Most Trusted Brands ranked Philips at number sixteen in 2003. In the previous two years Philips was there as well. It was amongst only two non-FMCG brands to be listed in the top twenty. The flagship lamps factory at Mohali, Punjab bagged the prestigious Philips Business Excellence (Silver) Award. It's a distinction it shares with only three other Philips factories worldwide. 'Let's chat' - the internal communications programme of Philips India was awarded the MIS Innovations award for innovative use of technology in communications.

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Philips India Limited was selected as one of the Top 10 Greenest Companies in India under a survey carried out by Business Today and TERI (Tata Energy Research Institute) in 2001. Philips, today, has fashioned itself to continue its dominance of the Indian market. For, it is here that three revolutions are taking place: the convergence revolution, the digital revolution and the internet revolution. Fortunately for Philips - and its customers - it excels in all three. PRODUCT Philips introduced the incandescent lamp to India over 70 years ago. Today, the most widely used lamps across even the far reaches of this vast country are Philips. ‘The company's lighting product is also the preferred name in hotels, offices, city streets and automobiles. Continuing reforms in the electricity sector and the need for energy conservation will see new opportunities for energy-efficient lighting solutions. When that happens, Philips will be there. Philips brought the radio to India when wireless opened up new horizons for information and entertainment. As technology evolved, the company, quickly replaced valves and tubes with transistors. To improve listening experience Philips invented and introduced the audio cassette, the CD, the VCD and the DVD. Richer viewing was also on the menu with Digital Natural Motion, Pixel Plus, Plasma and 100 Hz Real Flat TV sets all introduced by Philips. For customers' kitchens and homes, Philips brought convenience and high styling. For the kitchens, a range of food processors: blenders, juicers and grinders, especially designed for Indian culinary preferences and a range of bread toasters and sandwich makers. For the body beautiful, hair styling and epilation products for women and shavers for men. Philips is revolutionising garment care at home with over a million steam irons in perhaps as many homes. A leader in health care, Philips delivers one of the world's most robust portfolios of medical systems in the areas of Imaging (MRI/CT/cardio vascular and ultrasound), Measurement (patient monitoring systems and cardiology equipment) and Electro 7

Physiological Therapy Systems (automatic external defibrillators, point of care diagnostics). To any one undergoing a cardiac examination in India it is comforting to know that there is a one in two chance that the equipment being used is from Philips. In the specialised area of surgical X-ray, Philips' innovation in the mobile c-arm for intraoperating imaging is unmatched. To meet the growing need for high-quality, cost-effective software development capacity within the Philips organisation, and to bring about synergy and cross-fertilisation of ideas, the company established the Philips Software Centre (PSC) in Bangalore, in August 1996. PSC's software expertise is in the areas of embedded and information system engineering, architecture design, programming and testing. Close to 20% of software content for Philips worldwide is developed at PSC by over 1,000 of the industry's finest professionals. Aided by a constant flow of innovations and customised features, the Philips consumer electronics division has dramatically increased its market share of colour TV sets. In the 'Real Flat' and premium segments, the division's strong value-added product portfolio, based on leading technologies such as Digital Natural Motion and Magnabrite lenses, have ensured a market standing in the top three. To strengthen its position in Wireless in Local Loop (WiLL) it has deployed state-of-theart, ultimate one-chip solutions backed by customised software. In the coming years efforts are being made to support the Indian market with state-of-theart set top boxes, DVD solutions, energy measurement solutions as also broadband products. Philips occupies the number one slot in audio, portable audio, CDRCR, VCD Minis, CTV (Source: ORG - October 2003) and Plasma TV (Source: Industry Data). Philips also continues to maintain the leading position in DVD players and home theatre systems. Philips' presence is not always visible, but unmistakable. Whether it is components or semiconductors, Philips is the leader in inventing, innovating and creating the technologies that underpin the products that people experience every day.

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RECENT DEVELOPMENTS An understanding of why and how people listen and see, what experiences people wish for and a deep knowledge of the technologies that make this possible has kept Philips in the lead for over 70 years in India. Philips, for instance, introduced power-free radio for the Indian rural markets where power supply was a major constraint. This was not an isolated example of getting it right. Philips has, in fact, evolved a special integrated rural marketing initiative aimed at the Indian rural market. Philips has also developed a TV that improves the quality of incoming signals to allow viewers to see sharper images. Promotion 'Let's make things better' has been the Philips theme since 1995. This is more than just the company slogan. It's Philips' way of announcing itself to the world. Easy to understand, easy to remember, it expresses exactly what Philips wants everyone to feel when they come in contact with the brand. It's a public expression of the beliefs to which the company is committed. And it's a declaration of the company's aspirations. On one level, 'Let's make things better' means wanting to produce better products, better systems and better services. But such a desire is hardly unique. All successful companies look for ways to improve their products. Of far greater importance to Philips is the need, the determination, to make the lives of people better. Philips understands people; Philips under-stands technology and Philips knows how they work together. Philips knows it is no longer enough simply to make things. Philips chooses to make things better. Brand Values Philips has embraced consistent values across all the countries where it operates. It practises the Four-D principles that form a family of action-able values: Delight customers, Deliver on commitments, Depend on people and Depend on each other.

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In India, as in all parts of the world, when customers seek superior technology, design and quality, they depend upon Philips. Across the world, Philips owns over 100,000 patents, 22,000 trademarks and 6,000 design copyrights. Philips manufactures 2.4 billion incandescent lamps every year. Each day, Philips manufactures 50 million ICs (Integrated Circuits). Three out of five TVs produced in India have a Philips semiconductor module in it. 2.5 million heart scans and procedures are carried out using Philips technology each year. Around the world 30% of offices, 65% of top airports, 55% of soccer stadia, 30% of all hospitals are lit by Philips lighting. Philips in India is part of the Royal Philips Electronics N. V., the global giant in electrical & electronics. As one of the nation's most well-known and well-loved brands, Philips is a part of practically every Indian's life. Philips products find a use in virtually every aspect of daily life - at home and at work. Today, Philips stands as a source of reliable and innovative products that enhance the quality of consumers' professional and personallives. Philips is a world leader in technology with a leading presence in Lighting, Semiconductors, Consumer Electronics, Domestic Appliances and Personal Care, and Medical Systems. GROUP COMPANIES OF PHILIPS IN INDIA Philips India Limited (PIL) •

Philips India Limited manages the businesses in Consumer Electronics, Lighting, Domestic Appliances and Personal Care, Semiconductors and Components.

•

Royal Philips Electronics N. V. holds around 83% of the shares in Philips India Limited. The shares of PIL are listed on Mumbai and Kolkata Stock Exchanges.

•

PIL has its Registered Office in Kolkata, Corporate Office in Mumbai, Regional Offices in Mumbai, Chennai, Delhi and Kolkata and Branch Offices in major state capitals around the country.

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•

PIL has manufacturing sites at Kalwa (near Mumbai), Pimpri and Loni-Kalbhor (near Pune) and Kolkata.

Electric Lamp Manufacturers India Limited (ELMI) •

Is a wholly owned subsidiary of Philips India Limited. ELMI is located in Kolkata and manufactures lamps for Philips and is marketed in India by Philips India Limited.

Punjab Anand Lamp Industries Limited (PALI). •

Is a subsidiary of Royal Philips Electronics N. V. Philips India Limited has a shareholding of around 23% in this company. PALI is located in Chandigarh and manufactures lamps for Philips and is marketed in India by Philips India Limited.

Philips Medical Systems India Limited. •

Is the India subsidiary of Philips Medical Systems International B.V. (a subsidiary of Royal Philips Electronics N.V.).

•

Has a strong presence in the Indian Healthcare Equipment market - offering the entire spectrum of equipment and solutions in this field.

•

Key strength in Diagnostic Imaging Radiology both in X-Rays, MRI and Ultrasound, Nuclear Medicine and Positron Emission Technology. Also Cardiology, Patient monitoring, Critical care and Home care.

PRESENT SCENARIO Today, they are No. 1 or No. 2 in almost all the product-markets they serve. Their heritage is their understanding of how people experience technology- because people interact with technology practically every second, often without even realizing. Philips brought the incandescent lamp to India over 70 years ago. Today it has wide range of products used in homes , whether in the remote reaches of India or penthouses in South Mumbai Philips or in commercial spaces like in hotels, offices, city streets, malls , anywhere and everywhere light enhances the quality of the ambience. It is also

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attempting to make a mark in automotive lighting. State of the art technology greatly enhances the quality of light and the energy efficiency in the usage. Philips brought the radio to India when wireless opened up new horizons for information and entertainment. Valves and tubes were quickly replaced by transistors, and Philips has remained the innovator by being the first to bring the audio cassette, the CD, the VCD, the DVD, for richer and better listening experience. Richer viewing was also on the menu. With Digital Natural Motion, Pixel Plus, Plasma, 100 HZ Real Flat Philips brought visual delight as never seen before. With technology and style playing a significant role in the final consumer choice, the focus is on creating technologies that are cutting edge and in sync with ever-changing lifestyles, and, introducing globally launched technologies simultaneously in India. Philips recently introduced its patented proprietary and state-of-the-art 'AMBILIGHT TM (Ambient Lighting) TECHNOLOGY' for its latest range of Plasma and LCD TVs. At the forefront of its sales and marketing strategy, has been the expansion of the Philips ARENA network, a chain of Exclusive Philips Retail Brand shops, which showcase the entire consumer electronics range, and provide an enhanced brand shopping experience to the Indian Consumers. Philips' presence in Healthcare in India is all embracing. 50% of Cardiac examinations in India are done on Philips equipment. In the specialized area of surgical x-ray, Philips innovation in the mobile c-arm for intra operating imaging is unmatched. Philips Medical Division has been growing rapidly and has recorded more than 40% growth in 2005. Philips in India enjoys No.1market share in High field MR, Cardiac CT, Cath Lab and Monitoring systems among many other areas. Philips (Medical Division) is present in areas of Imaging (MRI / CT / Cardio Vascular and Ultrasound), Measurement (Patient Monitoring systems and Cardiology equipment) and Electro Physiological Therapy Systems (Automatic External Defibrillators, Point of Care diagnostics). Philips, with its vast sales and service network, offers world-class support in India. To the consumers' kitchen and home Philips brings convenience and high styling. For the kitchens a range of food processors: blenders, juicers and grinders, specially designed for

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Indian culinary preferences, a range of bread toasters and sandwich makers. For the body beautiful, hair styling and epilation products for the woman and shavers for men. Philips is revolutionizing garment care at home with over a million steam irons in perhaps as many homes. All these lifestyle and healthcare consumer offerings get better and better with digitalisation and the intelligence that is embedded. Philips technology platforms are unsurpassed in these. Philips is the leader in inventing, innovating and creating the technologies that underpin the products that people experience every day. Philips is today the leading lifestyle and healthcare company in India. It has fashioned itself to continue to be the leader in an India where people are increasingly becoming part of three revolutions: the convergence revolution, the digital revolution and the internet revolution. Philips is far more focused, leaner, even more consumer centered, more agile - all of which is reflected in its performance and in the excitement within the company. BUSINESS EXCELLENCE Philips continuously explores new ways to improve products and to offer innovative products to its consumers. That’s why we have created a program through which we will reach higher and higher quality levels in all products and services. In fact, this quality improvement program affects all our employees and all our processes, in every country, division or department, encompassing everyone from Board of Management to the shop floor. Philips calls it: 'BEST' - BUSINESS EXCELLENCE THROUGH SPEED AND TEAMWORK The BEST program is the path we have chosen to achieve business excellence. It describes a set of methods and tools by which we continuously improve our efforts. Previous successful initiatives are incorporated in the program to make sure we learn as much as possible from our successes in the past.

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Business Excellence We are all committed to improving processes in-line with the company’s strategic targets. To this end, has adopted BEST to reach this goal. It is our ambition to be one of the best companies in the world: the best to trade with, work for, and invest in. Our Measures: •

Customers are fully satisfied by the quality of our products and services

•

Employees develop and use their full potential

•

Shareholders get a premium return on their investment

•

Suppliers choose to work with us as this generates superior value for both

•

The larger community appreciates our contribution to the quality of life

Speed and Teamwork Speed and Teamwork lie at the heart of the BEST initiative. Each and every individual within Philips knows that only by fully cooperating and working together will we be able to perfect our business processes. That's why we focus on: Working more smartly and reducing the cycle-time of processes Working in teams and learning from the best practices of others Tools and approaches There are several tools and approaches in the BEST initiative. The core tool that is used to assess business maturity and direct improvement is the Philips Business Excellence (PBE) model. This is an exact copy of the Excellence model of the European Foundation for Quality Management (EFQM). The PBE tool is suported by many other tools, such as Breakthrough Management, Balanced Scorecard, One Page Strategy and Process Survey tools (PST). PSTs are maturity grids designed around specific processes, they give a clear insight in the areas for improvement and help to identify which steps should be taken to reach those improvement targets. The PSTs are fully compatible with the EFQM's widely-used excellence model, and have been provided to the EFQM free-of-charge.

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OBJECTIVES AND SCOPE OBJECTIVES •

Explore the benefits reaped by the company as a result on the value chain efficiencies through SCM and the contribution of SCM to the company’s survival and competitive advantage.

•

Discusses the concept of supply chain management and the benefits of revamping the SCM practices.

The scopes are the followings:

 Knowing the Dealers preference for Philips.  Knowing the facilities provided by the companies at all levels of distribution channel.  Knowing the strength and weaknesses of CTV.  Knowing the perception of CTV of different brands at all level.  Knowing the market share of Philips.

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LIMITATIONS This study will go in along way in helping the company in choosing the right strategy and taking the right decision.  This study is restricted to parts of Delhi & NCR which may not seem to present the general picture of the product.  All the retailers and farmers were not covered because of the constraints of time.  The sample frame or size for evaluating may not completely reflect the market.  The respondents may due to one or other reason, conceal the true facts, thus giving erroneous figures.  Some respondents replied half-heartedly. The limitations and constrains, which mainly well a hindrance in the performance of the project includes the following: •

Lack of expertise, being a trainee, especially in understanding consumer behaviour.

•

In case of primary data, sometimes it was difficult to contact or meet the professionals, due to their busy work schedule.

•

Sometimes professionals are unable to finish some of the information due to confidently of the same.

•

It was difficult to know the exact detail due to time constrain.

•

It was difficult to find information that exactly fitted the needs of the project at hand in case of secondary data or information.

•

Lack of upto date statistics.

•

Unreliable response from the retailer at times due to lack of time.

Question on sales highly sensitive and sometimes resulted in non-response from the retailers.

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THEORETICAL PERSPECTIVE BACKGROUND Competition in the new millennium will be across supply chains, not individual companies. The central aim of any business is to have the right products in the right quantities, at the right place, at the right time at minimal costs. This is in turn translated into the interrelated issues of customer satisfaction, inventory management and flexibility. Customer satisfaction to a high degree is dependent on the flexibility of the supply chain, i.e., its ability to respond to changes in demand. General Electric, Dell Computers, Compaq and other leading firms in the USA successfully introduced this concept in the early 1990's. Since then, many firms in the APO member countries have also introduced SCM practices to meet the challenge of the heightened competition. The concept of Supply Chain Management (SCM) involves the application of state-of the-art IT tools such as Internet, Intra/Extranet, E-commerce and EDI that greatly help organizations to simultaneously improve customer service and reduce inventories across the chain. An SCM system works collaboratively with customers, suppliers, trading partners and third parties to change the way operations are viewed, performed and measured. As today's companies focus on gaining economic and competitive advantage throughout the entire product life cycle, this can only be best achieved through leveraging of SCM across the entire enterprise. Against this background, this program was implemented for the benefits of organizations in the APO member countries, with a view to helping them significantly improve their productivity and competitive performance in the emerging millennium through the effect application of SCM principles and practices. In particular, the program provided a platform for the participating member countries to understand the difficulties of developing SCM in APO member countries and to discuss the possible alternatives of treating these difficulties and challenges; and to share their experiences on the practical applications of SCM that have contributed to increasing customer satisfaction, productivity, and competitiveness. The scope of the discussions covered, inter alia, conceptual and theoretical issues related to SCM and logistics strategy, critical elements

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of world-class supply chain planning, facilitating SCM through internet infrastructure, and technology for the supply chain of the future, building customer focused supply chain, organizational issues in implementation, and recent advances in SCM. SUPPLY CHAIN MANAGEMENT Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-oforigin to point-of-consumption. The term supply chain management was coined by strategy consulting firm Booz Allen Hamilton in 1982. A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. According to the (CSCMP), a professional association that developed a definition in 2004, Supply Chain Management "encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies." Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned. Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.

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SUPPLY CHAIN DECISIONS We classify the decisions for supply chain management into two broad categories: strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy, and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain. Shortened product life cycles, increased competition, and heightened expectations of customers have forced many leading edge companies to move from physical logistic management towards more advanced supply chain management. Additionally, in recent years it has become clear that many companies have reduced their manufacturing costs as much as it is practically possible. Therefore, in many cases, the only possible way to further reduce costs and lead times is with effective supply chain management. In addition to cost reduction, the supply chain management approach also facilitates customer service improvements. It enables the management of inventories, transportation systems and whole distribution networks so that organizations are able meet or even exceed their customers' expectations. To simplify the concept, supply chain management can be defined as a loop: it starts with the customer and ends with the customer. All materials, finished products, information, and even all transactions flow through the loop. However, supply chain management can be a very difficult task because in the reality, the supply chain is a complex and dynamic network of facilities and organizations with different, conflicting objectives.

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What has then enabled the effective implementation of supply chain management? The answer is found from the rapid developments in information and communications technologies. Use of databases, communication systems, and foremost advanced computer software are crucial for the development of a modern cost-effective supply chain management.

NEED FOR SCM 1. SCM is a concept or a mechanism to improve the total productivity of enterprises in a supply chain by optimising the timing, location and quantity of materials flow from raw material provider to the consumer of the final products. This concept is especially useful in the industry where (1) the competition in the market is very high, (2) the customers are very demanding for example in the well documented Dell Built-ToOrder model where 84% of Dell's revenue is derived from online customers who have the final say in the final configuration of their personal computers and notebooks, (3) the product life cycle is very short for example the electronics contract manufacturing industry currently experiences product life cycles of short as three months from raw materials to final consumption, and (4) stakeholders request for high returns on investment (ROI). Promising Asian companies should start investing in good IT infrastructure to improve the productivity in the supply chain. 2. There is a need for good SCM systems nationally and regionally for the APO member countries. This system should include databases, model bases, visual maps and friendly user interfaces. The proper use of such a system can help to minimize the

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total SCM cost (materials cost, production costs, warehousing costs, inventory costs and transportation costs). In ROC and Singapore, there are already such systems in the marketplace and well used by leading enterprises, in electronics and information industries. The benefits of employing such a model can help enterprises in the highly competitive electronic and computer industries to simulate their SCM strategies and determine the optimal SCM strategy under certain cost operating environments. 3. SCM should be linked to the digital economy as demanding and technology savvy customers around the world increasingly expect goods and materials to be delivered to their doorstep at "click-speed". In response to these demands, supply chains of enterprises and industries need to be more real-time and dynamic. Therefore, new technologies, intelligent software agents, will become an integral part of SCM. Quantum leaps in productivity and agility in the supply chain can be made possible by the courageous adoption of these intelligent agent based decision support systems. The US experience in the use of these software agents has been very successful as these agents (software programs) can actively engage with the user in dialogue, and negotiate and coordinate the transfer of real-time information to other users on web-based platform. Proper interfacing and integration of such agents can help realise the fruition of a truly global logistics network. An example is the establishment of the Global Transpark based out of the US. The Transpark serves to link manufacturing, transportation and information to create innovative logistical infrastructure for global commerce. 4. In the past, SCM is predominantly enterprise focused with mutually exclusive set of activities. Today, progressive firms are readily embracing systems integration through ERP and other means of electronic connectivity, primarily for cost reduction purposes. In the future, SCM would have to integrate enterprises, ensure greater collaboration between supply chain partners, work towards a synchronised value collaboration network. Only then can firms talk about chain-wide profit maximisation and economic value add. 5. Some of the main challenges presented by the resource persons include the following: building a supply chain infrastructure without damaging the environment i.e. how to

21

have a green supply chain, setting up a reverse logistics program for firms to ensure ecological balance and waste reduction, managing of demand volatility face by enterprises when they move to a digital arena and greater dynamic

customisation,

how to extract better channel coordination between partners in the supply chain, how to obtain better procurement leverage using real-time information and the Internet, how to extract greater profitability out of decreasing business margins, and the need to manage services besides the traditional product-based approach given the blurring between design and outsourcing of manufacturing. 6. Several pertinent concerns were also highlighted by the resource persons: sharing of risk between partners in the supply chain, the ownership of inventory (vendor managed of co-managed inventory), the applicability of some good SCM practice in certain industries (like VMI in the retail sector) to other industries, and information in the supply chain, the management of demand forecast projection and accuracy, and the ability of SMEs to invest in much needed IT and related technologies to improve their supply chain processes 7. There is a need for good SCM systems nationally and regionally for the APO member countries. This system should include databases, model bases, visual maps and friendly user interfaces. The proper use of such a system can help to minimize the total SCM cost (materials cost, production costs, warehousing costs, inventory costs and transportation costs). In ROC and Singapore, there are already such systems in the marketplace and well used by leading enterprises, in electronics and information industries. The benefits of employing such a model can help enterprises in the highly competitive electronic and computer industries to simulate their SCM strategies and determine the optimal SCM strategy under certain cost operating environments. 8. SCM should be linked to the digital economy as demanding and technology savvy customers around the world increasingly expect goods and materials to be delivered to their doorstep at "click-speed". In response to these demands, supply chains of enterprises and industries need to be more real-time and dynamic. Therefore, new technologies, intelligent software agents, will become an integral part of SCM. Quantum leaps in productivity and agility in the supply chain can be made possible

22

by the courageous adoption of these intelligent agent based decision support systems. The US experience in the use of these software agents has been very successful as these agents (software programs) can actively engage with the user in dialogue, and negotiate and coordinate the transfer of real-time information to other users on webbased platform. Proper interfacing and integration of such agents can help realise the fruition of a truly global logistics network. An example is the establishment of the Global Transpark based out of the US. The Transpark serves to link manufacturing, transportation and information to create innovative logistical infrastructure for global commerce. 9. In the past, SCM is predominantly enterprise focused with mutually exclusive set of activities. Today, progressive firms are readily embracing systems integration through ERP and other means of electronic connectivity, primarily for cost reduction purposes. In the future, SCM would have to integrate enterprises, ensure greater collaboration between supply chain partners, work towards a synchronised value collaboration network. Only then can firms talk about chain-wide profit maximisation and economic value add. 10. Some of the main challenges presented by the resource persons include the following: building a supply chain infrastructure without damaging the environment i.e. how to have a green supply chain, setting up a reverse logistics program for firms to ensure ecological balance and waste reduction, managing of demand volatility face by enterprises when they move to a digital arena and greater dynamic customisation, how to extract better channel coordination how to obtain better

between partners in the supply chain,

procurement leverage using real-time information and the

Internet, how to extract greater profitability out of decreasing business margins, and the need to manage services besides the traditional product-based approach given the blurring between design and outsourcing of manufacturing. 11. Several pertinent concerns were also highlighted by the resource persons: sharing of risk between partners in the supply chain, the ownership of inventory (vendor managed of co-managed inventory), the applicability of some good SCM practice in certain industries (like VMI in the retail sector) to other industries, and information in

23

the supply chain, the management of demand forecast projection and accuracy, and the ability of SMEs to invest in much needed IT and related technologies to improve their supply chain processes OPPORTUNITIES ENABLED BY SUPPLY CHAIN MANAGEMENT The following strategic and competitive areas can be used to their full advantage if a supply chain management system is properly implemented. Fulfillment: Ensuring the right quantity of parts for production or products for sale arrive at the right time. This is enabled through efficient communication, ensuring that orders are placed with the appropriate amount of time available to be filled. The supply chain management system also allows a company to constantly see what is on stock and making sure that the right quantities are ordered to replace stock. Logistics: Keeping the cost of transporting materials as low as possible consistent with safe and reliable delivery. Here the supply chain management system enables a company to have constant contact with its distribution team, which could consist of trucks, trains, or any other mode of transportation. The system can allow the company to track where the required materials are at all times. As well, it may be cost effective to share transportation costs with a partner company if shipments are not large enough to fill a whole truck and this again, allows the company to make this decision. Production: Ensuring production lines function smoothly because high-quality parts are available when needed. Production can run smoothly as a result of fulfillment and logistics being implemented correctly. If the correct quantity is not ordered and delivered at the requested time, production will be halted, but having an effective supply chain management system in place will ensure that production can always run smoothly without delays due to ordering and transportation. Revenue & Profit: Ensuring no sales are lost because shelves are empty. Managing the supply chain improves a company’s flexibility to respond to unforeseen changes in demand and supply. Because of this, a company has the ability to produce goods at lower prices and distribute them to consumers quicker than companies without supply chain management thus increasing the overall profit.

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Cost: Keeping the cost of purchased parts and products at acceptable levels. Supply chain management reduces costs by increasing inventory turnover on the shop floor and in the warehouse, controlling the quality of goods thus reducing internal and external failure costs and working with suppliers to produce the most cost efficient means of manufacturing a product. Cooperation: Among supply chain partners ensures mutual success. Collaborative planning, forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality, and support by the buyer of the supplier’s managerial, technological, and capacity development. This relationship allows a company to have access to current, reliable information, obtain lower inventory levels, cut lead times, enhance product quality, improve forecasting accuracy and ultimately improve customer service and overall profits. The suppliers also benefit from the cooperative relationship through increased buyer input from suggestions on improving the quality and costs and though shared savings. Consumers can benefit as well through the higher quality goods provided at a lower cost. SUPPLY CHAIN MANAGEMENT PROBLEMS Supply chain management must address the following problems:Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers. Distribution Strategy: Centralized versus decentralized, direct shipment, cross docking, pull or push strategies, third party logistics. Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation. Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.

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SCM ACTIVITIES Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.

Strategic •

Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities.

•

Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.

•

Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management

•

Information Technology infrastructure, to support supply chain operations.

•

Where to make and what to make or buy decisions

•

Align Overall Organisational Strategy with supply strategy

Tactical •

Sourcing contracts and other purchasing decisions.

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•

Production decisions, including contracting, locations, scheduling, and planning process definition.

•

Inventory decisions, including quantity, location, and quality of inventory.

•

Transportation strategy, including frequency, routes, and contracting.

•

Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.

•

Milestone Payments

Operational •

Daily production and distribution planning, including all nodes in the supply chain.

•

Production scheduling for each manufacturing facility in the supply chain (minute by minute).

•

Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers.

•

Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers.

•

Inbound operations, including transportation from suppliers and receiving inventory.

•

Production operations, including the consumption of materials and flow of finished goods.

•

Outbound operations, including all fulfillment activities and transportation to customers.

•

Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.

•

Performance tracking of all activities

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INFORMATION

TECHNOLOGY

FOR

SUPPLY

CHAIN

MANAGEMENT Information technology (IT) is an important enabler of effective supply chain management. Much of the current interest in supply chain management is motivated by the possibilities that are introduced by the abundance of data and the savings inherent in sophisticated analysis of these data. The innovative opportunities coming to the fore with electronic commerce (e-commerce), especially through the Internet, have also increased the interest in IT. Supply chain management spans the entire enterprise and beyond, encompassing suppliers on one end and customers on the other. Therefore, our discussion of IT for supply chains will include both systems that are internal to an individual company as well as external systems, which facilitate information transfer between various companies and individuals. In addition, supply chain management typically spans many functional areas within a company and is affected by the way the various groups communicate and interact. For many firms, IT provides a competitive advantage. Though this has been true for some time in service industries such as banks, it is also becoming more relevant for firms such as large retailers, airlines, and manufacturers. Prominent examples include Wal-Mart with its satellite-connected Information Technology, American Airlines with its innovative Sabre reservation system, Federal Express with its superb tracking system, and Cisco with its "virtual manufacturing environment". When applying supply chain strategies that reduce cost and lead times and increase service level, the timeliness and availability of relevant information are critical. In addition, an increasing number of companies are providing value-added IT-based services to their customers as a way of differentiating themselves in the marketplace and developing strong long-term relationships with their customers. Of course, once these kinds of services are offered by even one company within an industry, they can very quickly become a basic requirement for all others.

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In many cases, current IT that supports the components in the supply chain process is diverse and disconnected. It has typically evolved throughout the years based on various local and companywide requirements that were rarely integrated. This issue must be addressed if a company is to position itself to manage its supply chain effectively. Various strategies are utilized by companies to overcome these problems and create systems that can use the multitude of data in the system effectively. Information flow between suppliers, manufacturers, and customers is critical for effective supply chain management. This entails information flow between different companies, a relatively new concept that is already widely practiced to varying degrees (e.g., e-mail, EDI, exchanges). The implementation of advanced IT solutions typically requires changes in organizational structure, as well as in employee job descriptions and behavior

4.9 GOALS OF SUPPLY CHAIN INFORMATION TECHNOLOGY We consider some of the ultimate goals of IT as it relates to the supply chain. Some companies and industries are currently far from achieving these goals, while others are well on their way to accomplishing many of them. To utilize information, we need to collect it, access it, analyze it, and have the ability to share it for collaboration purposes. Supply chain management system goals in these areas are: •

Collect information on each product from production to delivery or purchase point, and provide complete visibility for all parties involved.

•

Access any data in the system from a single point of contact.

•

Analyze, plan activities, and make trade-offs based on information from the entire supply chain.

•

Collaborate with supply chain partners. Collaboration allows companies to manage uncertainty, for example, through risk sharing or information sharing, and achieve global optimization.

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The primary goal of IT in the supply chain is to link the point of production seamlessly with the point of delivery or purchase. The idea is to have an information trail that follows the product's physical trail. This allows planning, tracking, and estimating lead times based on real data. Any party that has an interest in the whereabouts of the product should be able to have access to this information. As figure given below, information and products flow from the supplier to the manufacturer, internally through the manufacturer's distribution system, and then on to the retailers. Product flow

Suppliers

Manufacturers

Warehouses

Retailers

Information flow Interfirm

Intrafirm

Interfirm

Figure: Flow of information and goods in the supply chain •

Collect information: Evidently, the retailer needs to know the status of its orders and the suppliers need to be able to anticipate an incoming order from the manufacturer. This entails access to data that reside in other companies' information systems as well as across functions and geographic locations inside a company. Furthermore, the participants need to see data in their own terms; that is, if suppliers of cotton are looking at the demand for Q-Tips, they need it translated into pounds of cot ton consumed. Therefore, translation tables, such as bills of material, are required throughout the system. The availability of information regarding the status of products and material is the basis on which intelligent supply chain decisions can be made. Furthermore, it is not sufficient to simply track products across the supply chain; there is also a need to alert diverse systems to the implications of this movement. If there is a delay in a delivery that will affect production schedules, the appropriate systems need to be notified so they can make the proper adjustments by either delaying the schedules or seeking alternative sources. This goal requires

30

standardization of product identification (e.g., bar coding) across companies and industries. For example, Federal Express has implemented a tracking system that provides ongoing information on the whereabouts of any package handled by the company and makes this information available internally as well as to customers. •

Access to data: Here we introduce an important concept, the single-point-of-contact concept. The goal here is that all the available information, either information provided to a customer or required internally, can be accessed in one stop and be the same, regardless of the mode of inquiry used (e.g., phone, fax, Internet, kiosk) or who is making the inquiry. This requirement is complicated by the fact that to satisfy a customer's query, information may be required that resides in various locations within one company and, in some cases, across several companies. In many companies, information systems tend to be islands, depending on their functions within the company. Customer service will work with one system, accounting with another, and the manufacturing and distribution systems are completely separate (Figure given below).

Sales representative Demand planner

Financial systems

Sales/marketing systems

Accountant

Operations Logistics/m anufacturing systems

Service representative Customer service

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Occasionally there may be a transfer of some crucial information that needs to be accessed across systems, but if the transfer is not done in real time, then the systems never have exactly the same data. The customer service representative receiving an order may not be able to provide shipping status information, and the plant may not be able to inquire about current outstanding orders. Ideally, everyone who needs to use certain data should have access to the same real-time data through any interface device (see Figure given below). Sales representative Demand planner Single point of contact

Accountant

Operations Service representative Figure: New generation of information systems. •

Banking applications are advanced in this respect: you can access the same account information the bank tellers use, from almost anywhere over the telephone, computer, or ATM machine. Nevertheless, these systems may still be weak at linking all of a customer's accounts into a single point of inquiry—for example, accessing mortgage information at the same time as a bank account.

•

Analyze based on supply chain data: The third goal is related to analyzing the data, especially in a way that takes into account the global supply chain picture. In addition, the information system must be utilized to find the most efficient ways to produce, assemble, warehouse, and distribute products—in other words, the best way to operate the supply chain. As we have seen, this entails various levels of decision making: from operational decisions involving the way to fulfill a customer order, to

32

tactical decisions related to which warehouse to stock with what product, or what the production plan for the next three months should be, to strategic decisions about where to locate warehouses, and what products to develop and produce. To facilitate this, systems need to be flexible enough to accommodate changes in supply chain strategies. To achieve this kind of flexibility, systems need to be highly configurable and new standards need to be developed. •

Collaborate with supply chain partners: The ability to collaborate with supply chain partners is essential to a company's success. Indeed, an important objective in supply chain management is replacing sequential processes with global optimization. This requires not only sophisticated alignment of IT systems but also the integration of business processes. Depending on its supply chain role, a company may be required

to

either

integrate

with

a

customer's

procurement

system or require its own suppliers to link into its own systems or collaborative platforms, or both. The level and type of collaboration vary between industries. For instance, collaborative forecasting was initiated in the consumer packaged goods industry while supplier integration is more common in the hi-tech industry where outsourcing of critical components requires systems that support the product and logistics coordination. In recent years, collaboration has become the focus of supply chain systems. The ability to link and work effectively with suppliers has produced new systems called supplier relationship management (SRM). In addition, the various exchanges that were developed during the Internet boom of the late 90s are becoming collaboration platforms, whether private or public. On the other end of the supply chain, customer relationship management (CRM) systems are evolving to provide better contact and understanding of customer needs. As we will see, the four goals of supply chain management do not all have to be achieved at the same time, and are not necessarily dependent on each other. They can be targeted in parallel, with the order of importance depending on the industry, company size, internal priorities, and return on investment considerations. For instance, a bank could not survive without single-point-of-contact capability, a delivery company without a 33

sophisticated tracking system, and a high-tech manufacturer without a production planning system. To achieve these goals and to master the decisions and problems that arise when considering how to address them, it is helpful to understand many of the major issues in IT development, particularly as they relate to supply chain management. As we see in Figure given below, the following are the means toward achieving these goals. Collect

Access

Analyze

Collaborate

Integration/Standards

Infrastructure

Electronic commerce

Supply chain components

Figure: Goals and means of supply chain management

•

Standardization: IT standards are what allow systems to work together. They drive the cost and sometimes the feasibility of implementation.

•

IT infrastructure: The IT infrastructure, whether internal or external to a company, is a basic component of system capabilities. Without the communications and database capabilities, some of the goals outlined cannot be achieved.

•

Electronic commerce: Electronic commerce has been the most important emerging IT field in the last few years. It has enabled not only internal efficiencies but also the ability to collaborate with partners in the supply chain.

•

Supply chain system components: These components comprise the various systems that are involved directly in supply chain planning. These are typically systems that combine short-term and long-term decision support system and intelligence elements.

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Integration-related issues: How should priorities be set in order to achieve the goals discussed above? What kind of investments should be made in the short term and in the long term? INVENTORY MANAGMENT In business management, inventory consists of a list of goods and materials held available in stock. An inventory can also mean self-examination, a moral inventory. In computing, inventories can comprise physical and non-physical components. The dictionary meaning of inventory is ‘stock of goods’. An inventory may be defined as a stock of goods or services, which are held for the purpose of future production or sale. The goods or services may be a consumptive or non-consumptive type. Inventories form an alternative to the production or purchase in future. Thus inventory on one side is stock of goods and services but on the other hand it is locked capital. Inventory serves as a cushion between the production and consumption of goods necessitated by the technological demands of production and transportation and customer needs. Inventories can be categorized into several types. These are generally classified as Raw Material and Supplies Inventories, Production Inventories, and MRO Inventories, In Process Inventories, Finished Inventories, Material in transit inventory and Dealer stock.

INVENTORY CONTROL Inventories are generally justifiable and there are obvious economic reasons for their existence. Since there are several costs associated with the inventories, an effective inventory management boils down essentially to setting a balance between the opposing cost factors. Inventory control means controlling the inventories in the organization. It is a technique of maintaining stock items at desired levels, whether they may be a raw material, goods in process or finished products. FACTORS INFLUENCING INVENTORY DECISIONS There are both internal and external factors, which influence decisions on inventory in an organization. The external factors arise from market conditions, credit availability and government regulations. Market conditions can be viewed from two angles. Firstly there

35

is the dynamic nature of prices and availability. To combat this we adopt efficient forecasting and planning techniques. Secondly there is the finite time lag between the placing of an order and obtaining the materials, known as lead time which is defined as the period that elapses between recognition of a need and its fulfillment. Inventory level increases with increase in lead-time. It is comprised of administrative lead-time, manufacturing lead-time, transporting lead time and inspection lead-time. Generally there is variation in demand rate and lead-time. In order to compensate for uncertainties in either lead time or demand rate, additional stocks may be carried to reduce the risk of stock out during the lead time interval. This additional stock is known as safety stock or buffer stock, which is held in excess of expected demand. There is direct relationship between safety stock and service level.

Costs Associated With Inventories The problem of balancing the costs of less than adequate inventories versus more than adequate inventories is a complex one due to numerous costs involved. The major tangible costs associated with inventories are ordering costs or set up costs, carrying costs, purchase cost, under stock costs and overstocking cost.

COST INVOLVED IN HOLDING STOCKS The various costs associated with the stock can be classified into following groups: 1.

INVENTORY CARRYING COSTS

Inventory carrying costs represent the expenses of holding the stocks of goods. These include opportunity costs of funds invested in inventories, insurance, taxes, storage and cost of deterioration and obsolescence. These carry cost move in that proportion to the size of inventory. 2. ORDERING COST: These costs are in the form of procurement expenses which are incurred as and when we have to place purchase order. These include costs incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting, and storing.

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The ordering cost increase in proportion to the number of order placed. 3. STOCK OUT COST: These costs arise when there is equal to the storage in production facilities. It may be in the shape of lost sales or lost good will.

MATHEMATICAL MODELING FOR INVENTORY CONTROL The solution of inventory problem with mathematical models is to find appropriate levels of holding inventory, ordering sequence and the quantity that have to be ordered so that the total cost incurred is minimized. The demand and supply conditions that act within and without impose constraints on the decision-making process. The demand can be fully known, partially known or completely unknown. These three situations are termed as demand being certain, demand being risky and demand being uncertain respectively. On supply side there are two distinct possibilities: 1. The supply being static if only a single supply is possible during the entire consumption period. 2. Supply being dynamic if more than one supply can be obtained during the consumption period. These states of nature of demand and supply conditions can be combined to form six different practical situations, namely: 1. Supply station-demand certain 2. Supply station-demand risky 3. Supply station-demand uncertain 4. Supply dynamic-demand certain 5. Supply dynamic-demand risky 6. Supply dynamic-demand uncertain

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4.15 MODERN INVENTORY CONTROL TECHNIQUES Material Requirement Planning and Just in Time techniques have taken care of most of the draw-backs which were being experienced with traditional inventory control techniques for managing inventories in manufacturing environments. These techniques termed as modern inventory control techniques are primarily meant for manufacturing environment. JIT philosophy is of recent origin and is being widely applied in Japan. Under these techniques component parts are manufactured only when required by down steam work center, thus right amount of parts are made at the right time and the inventory is kept to virtually near zero. JIT techniques are being considered and tried in other industrialized countries too now. The success of JIT techniques in Japan is due to unique physical and philosophical characteristics typical of Japanese production system/culture. These include the ability to virtually freeze master production schedules, to cross train the highly skilled and very disciplined Japanese workers, to utilize high degree of automation and robotics and to profit from close proximity and reliability of material and parts suppliers. These characteristics enable Japanese firms to reduce system variability to the extent that demand can be estimated very accurately and production parameters such as machine processing times and utilization approach very stable levels. These factors are not exhibited in manufacturing systems in other countries. JIT techniques are at trial stage in industrially advanced countries and have not found their way in developing countries, as yet. MRP items are widely used for controlling manufacturing inventories in industrially advanced countries.

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METHODOLOGY PROCEDURE OF WORK RESEARCH METHODOLOGY Research was more of evocative research and is the moral fiber of the project. In order to bring about the objectives of the Project, it was important to eloquent the approach in which it is to be conducted, i.e. the research practice was to be carried out in a certain framework. Purposes of the research are to rummage around for acquaintance. Also research defines a systematic and organized search for applicable information on a particular topic. The data was composed to attain aforementioned objectives. This data was collected as:Primary Data: The SCM policies, strategies and their affectivity was composed through questionnaire which was dispersed to all the involved persons at different level of Philips India Office. Significance of this analysis was study of different SCM policies and their merits and demerits in Philips India. Secondary Data: It consists of information that previously subsist somewhat in papers. A manuscript is a very important trustworthy and priceless basis of information. Many researchers make use of this fundamental source. Manuscript is nothing of this imperative source; but printed evidence that contains important information about a problem or characteristic of learning. It may be purchased material, journals; company profiles company annual reports, and internal search etc. The composed data was processed critically examined and analysed. Sample Size The sample size in total included survey of Delhi & Philips India Offices and the importers and exports of Philips India.

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ANALYSIS OF DATA In the late 1990s, the CTV market was characterized by intense competition and unprecedented Price erosion. In an attempt to improve cash flows and bring down inventories, the company Restructured its CTV manufacturing process. Pil decided to leave the relatively low value adding Manufacturing processes such as final assembly and testing to supplier-partners who were close to the marketplace. These supplier-partners not only had much lower coststructures, they were also far more flexible. By having several supplier-partners in different parts of the country, pil was able to reach out to customers in the shortest possible time and with very low inventory in the pipeline. In june 1997, pil shifted the final component assembly process for ctvs out of its at salt lake factory to three new assembling centers in west bengal, punjab and uttar pradesh, to keep the assembling unit of the final product as close to the customer as possible. Pil also started outsourcing low value components from local players, while concentrating on the production of high-value items. In april 1998, pil shifted the manufacturing operations of its lighting division to pali. Fluorescent lamps began to be manufactured both at pali’s mohali (near chandigarh) factory and elmi. A pil spokesman explained, “the shifting has occurred because the company could not match the desired manufacturing levels. We have to keep shifting our production units closer to the market. Shifting the manufacturing of lighting equipment to subsidiary companies has been happening for some time now.” According to analysts, effective cost management had been a major feature of pil’s restructuring efforts. Pil streamlined its electronics division by reducing manpower through a vrs and by outsourcing through third party contracts. Pil reduced its distribution costs as well by outsourcing a majority of its logistics requirements - primarily freight handling and warehousing. During 1996-1999, pil decided to replace ad hoc suppliers with contract transporters who provided dedicated vehicles. In 1999, 75% of pil’s goods were transported via trucks to its 2009 outlets. While a truck usually took about eight days to move from delhi to pune, pil’s 40

dedicated carriers took just five days. Pil’s redistributors also helped cut costs. Having a redistributor meant that products had to be delivered only to the redistributor closest to the plant instead of sending them to a distributor who could be located anywhere in the country. Pil halved its inventory carrying levels since the redistributors took over the task of servicing the retail outlets. PIL also reduced its manpower needs and the fixed component of its distribution costs. Out of its 39 depots, pil owned only four, which were also expected to be franchised. Pil had earlier franchised its eight exclusive showrooms. Additionally, pil initiated a new infotech initiative to get on-line information on sales from each of its dealers, and the stock position at its depots. This was expected to help pil move goods in line with the actual requirements of its channels and reduce costs further. Pil also restructured its relations with suppliers so that they could deliver quality products at

Competitive prices. As a first measure, the company moved towards having a

maximum of three Suppliers for any item. All suppliers were required to get international quality certification. PIL Attempted to build a long-term relationship by involving the suppliers right from the product Planning stage. Each supplier was assessed periodically through company audits. The company created categories of preferred suppliers and supplier partners. All suppliers were also expected to do their own quality testing and the company only conducted random checks. Vendor quality assessments and company findings were freely exchanged and were available to both the vendor and shop floor engineers. In spite of putting in place all the above measures, PIL’s financial performance during the 1990s was not consistent. Encouraged by the 22% compounded rate of growth in its main businesses during 1993-95, PIL had added capacities. It ran into problems during the subsequent slowdown, posting a net loss of over rs 140 million in 1997-98. However, PIL managed to report a net profit of rs 120 million in 1998-99. Meanwhile, competitive pressures had increased further, not only from indian players such as bpl and videocon, but from mncs such as lg and samsung as well. PIL announced a huge loss of rs 342 million for the year 2008-09 (Table I).

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TABLE I: PHILIPS INDIA – PROFIT AND LOSS STATEMENTS (in Rs

Gross Sales

million) 2007 2008 16,633.5 17,288.

2009 14,930.

2010 15,255.4

Excise Duty Net sales

9 (344.3) (591.7) 16,289.2 16,697.

9 (409.0) 14,521.

(580.0) 14,675.4

Other income Total income

2 128.9 173.2 16,418.0 16,870.

9 152.7 14,674.

190.1 14,865.5

3 3,010.0 278.0 9,103.4 224.6

6 1,828.8 (204.9) 9,067.0 223.3

2,449.5 376.9 7,894.8 206.5

expenses Cost of material

11,959.6 12,616.

10,914.

10,927.7

Employee cost Power & fuel Advertising/ promotion/ public Freight & forwarding Other expenses Cost of sales

1,014.8 200.7 520.2 321.6 1,217.5 15,234.4

0 1,110.0 176.4 477.1 346.9 1,166.8 15,893.

3 1,038.0 134.4 97.2 327.6 1,670.3 14,181.

1,035.9 92.0 100.3 288.7 1,615.0 14,059.6

PBIDT Interest & finance charges PBDT Depreciation PBT Provision for taxation Extraordinary items/ Prior year adj. Adjusted PAT Dividend payout Forex inflow Forex outflow Source: www.indiainfoline.com

1,183.6 349.6 834.0 326.7 507.3 80.3 (307.2) 119.8 75.1 438.0 1,469.5

3 977.0 325.3 651.7 338.2 313.5 31.0 (1.2) 281.4 125.2 463.7 1,442.9

7 492.9 238.2 254.7 293.3 (38.5) (53.1) (356.1) (341.5) 415.7 997.4

805.9 158.9 647.0 260.2 386.8 (189.5) (787.9) (211.6) 736.3 1,130.8

Raw materials Stock adjustment (Inc)/ Dec Purchase of finished goods Conveyance, travelling and

3,104.5 (152.3) 8,798.0 living 209.4

The company blamed its poor performance on poor sales in its consumer electronics (CE) and domestic appliances divisions. The CE division, in particular, had fared rather badly

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with a 36% decrease in growth. There were a host of problems with the company’s logistics setup as well. Due to the region-based distribution set-up, goods reportedly passed through the entire country before reaching the final destination, taking a total of 18 days. In the process, the goods were handled eight times during loading and unloading during transportation. To set things right, PIL decided to focus on improving manufacturing efficiencies. The plant location rationalization and other related exercises seemed to have paved the way for the management’s decision to focus on restructuring the supply chain management (SCM) practices. Managing Director Ramachandran went to the extent of claiming that SCM had become critical for PIL’s ‘rebirth.’ What followed went on to become a classic example of how an old-economy behemoth with its huge and complicated cross-border distribution and supply chains transformed itself into a lean, nimble and much more efficient organization. 5.1 OPERATION MANAGEMENT IN PHILIPS MANUFACTURING PROCESS AND ACTIVITIES

PLASTIC PLASTIC PROCESSING PROCESSING

SURFACE SURFACE TREATMENT TREATMENT

CENTRAL CENTRAL STORES STORES

ASSEMBLY ASSEMBLY TESTING TESTING DESPATCH DESPATCH

BOUGHT BOUGHTOUT OUT COMPONENTS COMPONENTS 1) MATERIAL RECEIVING/INSPECTION The Consignment consisting of raw-materials like Acrylic, Nylon, Nickle, polyproplyene etc. among which head lamp glass which is been imported from Japan gets received at 43

Material receiving shop. After processing the documents in computers, the raw material passes through initial inspection of specification quantity and dimension. Then the material gets transferred to Raw-material store at first floor through different material handling devices like conveyors, lifts and hand-driven trolleys. The storekeepers then arranges the R-material as per job works. MAIN OPERATIONS

Moulding shop:1. Heating and Melting:- In this section, huge Ovens are installed for heating the different raw-material like polycarbonate i.e. as per the specification of customer, raw material is been poured into the tank installed near ovens. Then a sucking machine inhales the plastic raw-material into the oven. After that oven set at the temperature of 80-850C. The raw-material gets melt and automatically after reaching the desired temperature the melted form of plastic gets transferred to different molding machines of different capacities as per the preset requirement. In this process a 10% of man-power, cost, time and risk has been reduced by applying the automation of exhausting raw-material through tankers and after that flow of melted plastic is again an automatic process. 2. Plastic Processing:- Under this process the melted plastic goes through machines, in which a particular fixture or mould has been fixed for processing a certain product. There are total of 22 such machinery’s. The melted material gets transformed into a sub-product with the help of a 180-400 tonne. Injection molding machines. Though the heating zone i.e. temperature, material changes according to different products and sizes. Most of the machines are of different capacities and the biggest capacity machines is of 400 tone namely CLF 400-T-made in Taiwan. Other machines are WM-350 (win Micro) SP - 300 SP - 180 WM – 125H 44

WM - 250 Like wise there’s a 125 tonnes capacity machines for producing gear shifter Rods and the material used for this is polypropylene. All above are molding machines placed in area where molding take place. Different products manufactured as per the demand and schedule like tail lamp of maruti-800, Indicator light of Kinetic Honda etc. By applying different dyes or fixtures or moulds any type of Auto light can be produced. The average time of production of a lights approximately 30 seconds for a piece. An operator per machine is assigned who works under a supervisor. After every 5-6 hrs. The quality check department does a random testing of finished product to minimize defects rather zero defects. The fixing of fixtures or Dyes takes place manually and are designed in the Philips plant itself by technicians and Engineers. The Scrap collected out of the process is of negligible use and sold after the process. Overall the molding is a complex procedure and each product line has its own particular set of fixtures. The processed plastic then takes the shape of a semi-finished product like tail-lamp back assembly. Then from this molding shop, through material handling devices like handdriven trolleys and product gets transferred to the different Assembly lines as per the requirements and fitment. A work’s table is there near molding area where different supervisors keeps check on operator’s performance and manufacturing processes Daily Production, Report of all the components produced displays the production efficiency/works and workers and check whether daily target has been achieved or not. It there’s a break down of a machinery or an over-hauling takes place, the work gets divided in other machines and usually maintenance scheduling is done between 3-4 hours. Every set of machine has different operating standards like temperature control, heat control, vacuum pressure etc. and there’s no scope left for negligence as machines clearly shows such attributes by a meter and supervisors keep patrolling the machines to avoid any breakdown or accident. 45

The molding division or shop is the most critical and complex zone where highly skilled technicians and managers have been deployed. The handling of raw-material from the store is scheduled at a very appropriate rate which do not affect the production process and through trolley the labour shifts the material and in the same way the finished goods also been taken away at scheduled timings. The material storage devices in molding shops are bins and small racks, but these are not placed at waist level, which is a major flaw which hinders the free motion of body. The Dyes, fixtures and original fitment components are placed in molding shop itself so as to save time of carrying there dyes. As soon as a particulars quantity of a lot finishes, the worker engaged in loading makes the place clear and carry the semi product to assembly line. The concept of 5’S’ is very minutely implemented in molding shop. The plant is a No-Smoking Zone. Discrepancy in material storing after product comes out of machine-inappropriate level of storage devices. Metalising shop:1) Lacquering:- A completely dust proof, smoke proof Zone where head lamps and head light accessories gets dipped in lacquers and other chemicals and also, the process of metalising been done. Metalising is basically nickel coating so as to make sure that the dispersion of light through the head-lamp is well focussed and as per standards and norms. The head-lamp/light basic mould is not been manufactured completely in plant. The company also outsources this component from its other plants. The components first get dipped in a lacquer tank, the motion of component is through a chain assembly line. At a time a manual operator puts 8-10 pieces on a conveyor chain and the moving chain passes through a tank filled with lacquer and in such a way the prices passes through 2 such tanks. It is like a protecting layer before metalising. A dryer that dry off the piece when chain passes through it. When the lacquering gets done and the piece dries up operator takes the pieces off the chain manually and keeps them in plastic bins and carry through hand driven trolleys to the paint shop which is just adjacent to lacquer shop. One cycle takes approximately 8 minutes to cover a complete lap. 2) Paint shop:- The lacquered pieces passes through the paint shop in the same way through conveyor chains and an outer side of pieces gets painted through a operator 46

operated spray paint machine. The process is a very simple one after painting, again the chain passes through dryer and as soon as pieces dries-up, then worker takes the component to the metalising sop which is next to lacquer shop n trolleys. 3) Metalising:- In this section a huge Imported Metalising machinery namely VMTaiwan i.e. Vacuum Metalising is set up coat the component with Nickel i.e. the silver shining effect which ultimately is necessary for light dispersion. One of the positive feature of this machine is that it has two input doors, while the one is compressed with the machinery, the other can be fully installed with raw semi-product i.e. prices can be put upon the hooks and this results in time-saving. At a time 30 pieces go inside the machinery and the cycle time is 13-14 minutes. The input for the machinery is Nickel which is feeded into the machinery through auto sucking pipes from the tanks. It is very important to keep the machine doors clean as a minor dust particle can be a cause for a defect or the mixture quantity can be over applied which is also not acceptance. The temperature maintained is relatively medium and proper meters for scrutinizing the operations parameters like vacuum pressure, temperature etc. has been appropriately installed. Two operators work on this machine under a Technical supervisor. Safety measures and hygienic conditions are very considerable factors in this zone and is one of the most neatly maintained zone. A little found filled with iron foot mat is been placed at the entrance so that a person entrusting the zone do not carry dust along with his shoes. Dust gets off with water. Other major aspect that are to be followed are marked as VISUAL CHECK POINTS LIKE OIL MARK, DUST, BLACKISH PAINT, GAS MARK, METAL OVER FLOW, RAINBOW, YELLOWISH, BLACKISH etc. Metalising is a process whereby to ensure smooth paint coat, scratch proof finish etc. firm has invested a pretty handsome amount in different operations. The semi-finished product, which is input for Metalising plant, is of several types and dimensions like Maruti 800 – headlamp assembly, Tata Indica head light assembly unit. Firm outsources most of this headlight from its sister concern located in daultabad village of Gurgaon and also from Sohna plant located in suburbs of Gurgaon district. Here JIT concept is been followed by the firm, firm keeps an inventory of 2 days for most of its components. The metalised i.e. finished product from metalising shop then gets transferred to the assembly

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shop located next to it. Hand-driven trolleys are used to shift the components and plastic bins are storage equipments. The piece is been wrapped in plastic poly-bags to prevent it from dust etc. Remarks:- Metalizing is a major shop, which follows 5 ‘S’ very closely, like the water pond activity and visual check point’s etc. But there are some discrepancies in lacquer and paint shop. Manual transfer of semi product consumes time and manpower. The two door vacuum Metalising machine concept is a Japanese initiative which in-turn is very cost-effective. Assembly shop:- the final shop before a product gets ready to be dispatched is assembly shop. In this zone the input is the semiproduct received from the molding section and Metalising sector. The components that comes as input are tail-lamps of different cars like Maruti Zen, Tata indica, Opel Astra, etc and head lights of different dimensions and sizes. There are total of 18 assembly lines and the process is almost similar in all of the 18 lines. 5 basic operations took place in these assembly lines namely adhesive application, hens fitting, ultrasonic sealing, vacuum Testing etc. An operator per operation is deployed and a supervisor keeps patrol over operators activities. These operations are minute and are time bound activities. A particular time per machinery has been set and operator has to perform his/her operation within the prescribed time. The molded pieces which are inputs are been placed at waist level so that its convenient to reduce body motion. Components are placed in plastic bins and Racks. Here scheduling of Input and finished good-is also pre-set and Loaders apply in-house JIT i.e. no. wastage of space and no extra inventory at work place. Very minute technicalities are involved in assembly shop so skilled and technical patrolling takes place offer every 8 hrs. or can be before that i.e. random sample testing or on-work quality checks that means whether the operator’s dexterity towards placing the components etc. are as per standards or not. Basically Assembly shop Operations one divided into 5 parts they are:a) Adhesive Application:-

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Glue is applied over the outline of the frame of tail lamp/headlamp before the outer covering gets fixed so as to give maximum strength of fixation. The raw-material for glue machine is Glue-bars outsource from local vendor and then these bars are raised upto a temperature of 3000C and the melted glue through pipes then applied on light frames both manually and through Robots. The Robot concept is also one of the productivity measure been introduced by Stanley corporation (one of the Collaborators) Japan, when Maruti introduced its latest version of maruti-800. The tail lamp design is very complex so to save time and complexity robot applies glue on light frame. Similarly after the inception of Robot for Maruti –800 model, Philips installed more robots for other components also. The benefit of adhesive application is that the glue gives a strength base for the outer light frame to be fixed after this glue operation. In assembly shop Job-Rotation takes place at a predetermined period so as to make everyone comfortable with every operation. After application the product then transfers manually to next operation that is hens fitting. 2) Lens fitting:- The process involves fitting of outer glass/light covering, which is also manufactured in the same plant in molding zone. A medium size-compressing machine is done the process of lens fitting. The operator manually places the head light/taillight frame on to the dye/fixture and the glass to be fitted also placed over it. The upper lever compress the lower section on which both tall light and glass covering has been placed for 20 seconds at a pressure of 4 kg/cm2. The parameters are preset for the machinery for different components and are displayed through different meters. The dye/fixture has to be changed as per the product specifications and dimensions manually and takes approximately 35 minutes. The supervisor then scrutinizes the initial both as per the customer’s specifications. This is a time bound activity so careful patrol is necessary and the work has to be completed within prescribed time limits. The complete frame including glass and fail light frame then transferred manually to the next operation zone i.e. ultra sonic sealing. 3) Ultrasonic Sealing:- This is a minor process, which includes fitting of ultrasonic, lens i.e. the reflector in the tail lamp accessory. This component is also produced in same plant in (molding zone). The small pieces of ultrasonic lens gets transferred manually

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from molding to assembly shop in hand driven trolleys placed in plastic bins. The operators in the same manners puts the tail lamp accessory on to the fixture and place me lens over it. The compression then fixes it over the light. Hereafter the light assembly is complete and electrical component fitting is the next procedure which is ultimately the final stage of the product. In lens fitting machine also different dyes and fixtures are used as per the the product specifications and dimensions. The fixtures are replaced manually by the operator under the supervision of the supervisor which usually takes approximately ½ an hour. 4) Electrical Assembly fitting:- The purpose of light is incomplete without the bulb assembly. The wire assembly and the bulb are the components, which are to be fitted into the fail light/head light assembly. The co. outsourcer’s bulbs from Europe, Japan and Korea of Philips and Osram brand. The wire assembly is been outsource from one of the co. plant. The Co. maintains JIT concept for wire assembly of 2 days but keeps a inventory approximately a month for bulbs as the component comes through shipment from outside the country and co. keeps a contingent provision. The process fitting is also a time bound activity. The operator manually places the assembly into the tail light/head light assembly and makes necessary connections. The next process is a bulb testing. The operator places the finished product over a particular match fixture and connects it to the power connection and test whether the fitting is defect free or not. The next process is water/vacuum testing. 3) Vacuum Testing:- this is a crucial process to check the water proofing/leakage pressure i.e. the process, which scrutinize that water should not enter the light assembly when fitted on to the car. The water proofing can be tested by 2 methods, one by pouring water over the product or by testing the vacuum pressure. The latter one is a scientific on method and Co follows this process. The vacuum testing machine compresses of particular pressure and checks the vacuum pressure. This is a very complex issue so co. places the light onto a replica of original fixture and then does check.

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Here the product is now been transformed into a finished good. And is ready for dispatch. From this point the loaders carry the finish Goods being stored into plastic bins wrapped up in plastic poly bag covering through hand driven trolleys to the finished goods stores, located outside the operation zone. Document Processing and Dispatch:- As soon as the product is shifted into the finish goods store it becomes the property of Govt. thus excisable under excise act i.e. after the excise duty has levied. The invoices are issued as per the customer’s orders. In finished good store also few of the manual operations taxes place like putting the specified stickers, labels on to be packages and bifurcating the products into different desired categories like tail lamp assembly, (left side and right side). The packages then are packed in cartons and are ready to move out of the factory gate as the invoices and other documents are attached with a particular lot. Having embarked on a focused and sustained effort in this direction, the operating costs more specifically, the cost of raw materials, labour costs, transportation costs and consequently the cost of the final finished product - continued to remain substantially higher than other similar units operated by the company in Chandigarh and Vadodara. Consequently, manufacturing operations at this facility were proving to be unviable in spite of persistent efforts to bring costs in line with levels at the company’s other manufacturing units producing the same product, elsewhere. After examining all potential alternatives, and keeping in mind that costs could not be contained within acceptable limits, a decision was made to cease manufacturing operations at that facility in September 2003. Looking at the overall interest of the lineof-business and the company as a whole, this decision was imperative and could not be deferred any longer. Work Study At Philips work study has been implemented at a large scale i.e., Cache and any minute details have a record and standards for each process are predetermines as specified by the techniques. The two parts of work study i.e. method study and time study have a deep impact on Philips operations.

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Method Study: Every process starting from metalling to paint shop to Assembly shop has certain pre-defined standards. All relevant charts have been put up against each machinery consisting of its operational technique, mode of processing etc. All types of process flow charts like heating, moulding, metalling are very well defined and placed at several places. The man-machine charts involving the co-ordination also been displayed. The idle time of each machinery is clearly shown and the Philips is trying hard to reduce the same. The cost performance of overall operation was also been conducted to assess the cost of operations. Different suggestion boxes have been put up to gather relevant information. All assembly shops are properly assigned with task to be performed supported by charts, information etc. The company has desired several benefits like the process of transferring melted plastic polycarbonate is now automated and the risk factor, cost factor have been minimized.

Time Study : The operational time of each machinery for eg. 20 seconds in case of compression machines etc. is pre-fixed and is set as per the requirements of products. The replacement time of fixtures and dyes is also predetermined and idle time is minimized. The concept of predetermined motion time system (PMTS) is applicable and is implemented in assembly as well as moulding shops. The firm has derived several benefits out of time study, it has record of all the timespecifications against each machinery and also keeps a track of operator’s dexterity i.e. time taken by an operator to complete a certain job. At assembly shop, a robot has been installed by the company after observing that the time taken by operator to apply adhesive was relatively high. Now the cost has been reduced and time is saved by installing a robot machinery.

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INCENTIVE SCHEMES Time standards can be used by companies in four major ways: (1) to estimate capacities and costs, (2) to improve performance, (3) to evaluate workers and to form a basis for wage payments, and (4) to measure labour productivity. The use of time standards for estimation, methods improvement and productivity measurement is widespread; in fact, almost all companies use standards are used as well in the development of incentive wage schemes for at least a fraction of the workforce. Thus while hourly wage payment (sometimes referred to as daywork) is more prevalent, incentive wage schemes are fairly common and widely discussed. Incentive schemes are logically divided into two groups: individual incentives and group incentives. The appeal of these incentives wage systems is readily understandable. The worker is paid according to how much he produces, not how long he works. It is generally accepted that workers on incentive wages work harder than those who are paid by the hour, other things being equal. In the piece-rate system, every unit of output has its own “price”, or wage reward. Workers are paid strictly according to how much they produce. Piece rates are generally inviolate over time except for well-recognized changes in methods, materials, equipment, or product specifications. In the standard-hour system, there are no wage “price tags” on every unit. Rather, a certain rate of output per hour is set as the standard, and pay varies according to what percentage of the standard is actually achieve. These standard-hour systems are the most popular wage incentive scheme, prevailing in about three-fifths of the companies with wage incentive programs. While they function much as piece-rate systems, their advantage is that pay increases can be made simply by adjusting the base rate, which is much easier to do than adjusting the many piece rates involved so that a given percentage increase for the workforce as a whole is proportioned equitably among all piece-rate workers.

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The attractiveness of individual incentive wages is, of course, to spur worker effort.

GROUP INCENTIVES Such programs are initiated in work situations where it is difficult to calculate what each individual produces, apart from what the individuals ahead or behind him produce. It is well known that the group working together can greatly advance productivity. There are a variety of group incentive programs, but they can be divided into two major groups: •

Those group incentives that apply to small groups of workers within a single plant consider the work group as an individual. Each worker receives a rate of pay that depends on the productivity of the group as a whole. Under such a group incentive, all the group members are encouraged to work together to improve the group’s productivity. Peer pressure can be great under such a system. As with individual piece rates, good time studies are essential to the smooth functioning of such group incentives. Although not widespread, small work group incentive schemes are the most likely to be found in worker-paced line flow jobs.

•

Those group incentives that apply plant-wide or even company-wide can be grouped under the heading “productivity gain-sharing plans.” These plans are devised in such as way that changes in the production process suggested by either workers or managers, as well as changes caused by increased worker effort, result In bonus payments for the workforce. Such plans are designed to increase the cooperation between all those in the plant, both direct and indirect labour, and to have everyone work smarter, not just harder.

OTHER BONUS AND PROFIT-SHARING PLANS There are many other bonus and/or profit sharing plans that various companies have instituted. Some involve only pension benefit for profit sharing while others pay cash bonuses that come from company profits. Some of these plans encourage worker suggestions and initiative, others do not.

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INCENTIVE SCHEMES •

Philips has been following the policy of minimum target achievement in terms of sales revenue.

•

Every year company determines sales target that is to be achieved by the whole-team including managers, supervisors and operators. The current year target is Rs. 3 crore.

•

The firm don not pay any incentive if the production is short of target, at the same time if target touches the required figure, every employee gets on incentive of Rs. 1000.

•

For every respective 10 lakh after Rs. 3 crore, every employee gets Rs. 100 and so on.

•

The employees also gets holiday packages for family, if the performances is above the standards.

•

If any employees is a part of kaizen activity being implemented by the company, Philips pays Quality Awards in terms of money, gift and certificate etc.

PRODUCTIVITY MEASURES Philips have tried to counter worker disaffection with innovations that make work more meaningful to people and thus more likely to receive their full attention and care. These innovations still have as a goal high company profits, but they are attentive to worker needs, especially as the character of the workforce has changed. A number of factors have emerged as important dimensions of satisfaction with one’s job and workplace, and each demands some attention from managers concerned about workforce well- being and productivity. In no particular order. •

Adequate and fair compensation: Still an important consideration for all workers. Is the pay sufficient, and is it in line with expectations and demands of other, perhaps similar, jobs?

•

Safe and healthy working conditions: Is the plant structurally sound and is the machinery safe to operate? Is the workplace attractive and comfortable? Are the hours long? Is there flexibility in the time workers can start or stop work?

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•

Immediate opportunity to use and develop human capacities: Does the job give the worker a sense of identity? Does it call for any substantial autonomy? Is the job self-contained or merely a small piece of a task with no real idetnity itself? Does the job call for planning as well as execution? Does it call for multiple skills? Is the job tied into the larger flow of information about the process and the control of that process?

•

Future Opportunity for continued growth and security: What opportunities exist for advancement on the job? How secure is the employment? Will the job provide the training and development needed to tackle still larger jobs?

•

Social integration into the workplace: To what degree is the workplace open and supportive of each worker? To what degree is the workplace free of prejudice and status symbols? How upwardly mobile are workers?

•

Rights in the workplace: To what extent does the rule of law and due process characterize an individual’s rights in the workplace? Are privacy, free speech, and equity fully respected?

•

Company vis-à-vis society: Is the company perceived as socially responsible and socially accepted?

With these kinds of considerations in to deal with worker dissatisfaction, of work restructure policies have been tested by companies like General Foods, Procter and Gamble, General motors, TRW, Ford Motor Goodyear, Cummins Engine, Eaton cooperation, and Mars, Inc., among others. The world restructuring that has been tested in these an other companies tends to very idiosyncratic no two programs are alike. Goals are held only loosely and timetables are extraordinarily flexible. The goals are dual the intended benefits are to be reaped by both management and the workforce. The adopted programs work by altering the “culture” of the workplace. 5.7 PRODUCTIVITY MEASURES Philips is not behind in applying all the above principles and has initiated several measures to increase productivity in the plant keeping in mind, workers benefit and

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company’s standards and norms. The HR department is very enthusiastic in keeping harmonious relations between employees and management. The managers come forward to achieve the target optimum cost. Such measures in form of operations and concepts are as follows:-

Total Productive Maintenance Total productive maintenance (TPM) is productive MAINTENANCE carried out by all employees through small group activities. The dual goal of TPM is zero breakdowns and zero defects. When breakdowns and defects are eliminated, equipment operation rates improve, costs are reduced, spare parts inventory can be minimised and as a consequence, overall productivity increases. It has been reported that typically, within three years from the introduction of TPM, companies show 15-25 percent increases in equipment operation rates while others show a 90 percent reduction in process defects. Labour productivity is generally increased by 40-50 percent. TPM is often defined as productive maintenance involving total participation. Frequently, management misconstrues this to imply that only shop floor staff need be involved. However, TPM should be implemented on a company- wide basis. TPM aims to establish good maintenance practice in operations through the pursuit of “the five goals of TPM” as follows: •

Achieve autonomous maintenance allow the people who operate or use the operations equipment to take responsibility for, at least some, of the maintenance tasks. Also encourage maintenance staff to take responsibility for the improvement of maintenance performance.

•

Plan maintenance: have a fully worked out approach a to all mainteaance activities. This should include the level of preventive maintenance which is required for each piece of equipment, the standards for condition-based maintenance, and the respective responsibilities of operating staff and maintenance staff. The respective roles of “operating” and “maintenance” staff are seen as being distinct. Maintenance 57

staff are seen as developing preventive actions and general breakdown services, whereas operating staff take on the “ownership” of the facilities and their general care. Similarly, the respective responsibilities of the two types of staff are seen as distinct. Maintenance staff are held to be responsible for the training of operators, problem diagnosis, and devising and assessing maintenance practice. •

Train all staff in relevant maintenance skills: The responsibilities of operating and maintenance staff require that both have al the skills to carry out their roles. TPM places a heavy emphasis on appropriate and continuous training.

•

Achieve early equipment management: this goal is directed at going some way to avoiding maintenance altogether by “maintenance prevention” (MP). MP involve considering failure causes and the maintain ability of equipment during its design stage, its manufacture, this installation, and its commissioning. In this way TPM attempts to trace all potential maintenance problems back to their root cause and then tries to eliminate them at that point.

The first principal feature of TPM, total effectiveness or profitable PM is also emphasized in predictive and productive maintenance. The second feature, a total maintenance system is another concept first introduced during the productive maintenance era. It establishes, a maintenance plan for the equipment’s entire life span and includes maintenance prevention (MP : maintenance-free design), which is pursued during the equipment design stages. TPM works to eliminate what are termed the big losses that are regarded as formidable obstacles to equipment effectiveness. They are: Downtime: 1. Equipment failure from breakdwons. 2. Setup and adjustment from exchange of dies in injection moulding machines, etc. Speed losses: 3. Idling and minor stoppages due to the abnormal operation of sensors, blockage of work on chutes, etc.

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4. Reduced speed due to discrepancies between designed and actual speed of equipment. Defects: 5. Process defects due to scraps and quality defects to be repaired; 6. Reduced yield from machine start-up to stable production. The dual goal of zero defect and zero breakdown has been very will achieved by the company. The initial inspection at the material receiving store by the technicians and the quality check between process and the thorough inspection of the finished goods ensures zero defect and the supervisors check of machines at predetermined interval ensures zero breakdown.

COMPUTER AIDED DESIGN Computer-aided design (CAD) systems provide the computer aided ability to create and modify product drawings. These systems allow conventionally used shapes (called entities) such as points, lines, areas, circles, and text, to be added to a computer based representation of the product. Once incorporated into the design these entities can be copied, moved about, rotated through angles, magnified, or deleted. The system can usually also “zoom in and out” to reval different levels of detail. The designs thus created can be saved in the memory of the system and retrieved for later use. This enables a library o standardized drawings of parts and components to be built up. Not only can this dramatically increase the productivity of the process but it also aids the standardization of part in the design activity. Some CAD systems come already supplied with their own libraries of standard parts. The software used in CAD systems varies in its degree of sophistication and modeling ability. The simplest type models only on two dimensions. This produces plans and elevations of the design in a similar way to a conventional engineering “blueprint”. More sophisticated systems can model products in three dimensions. This can be done in very basic form by “extruding” the two – dimensional image to give thickness to different parts of the two dimensional shape.

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The most obvious advantage of CAD systems is that their ability to store and retrieve design data quickly as well as their ability to manipulate design details can considerably increase the productivity of the design activity. In addition to this, however, because changes can be made rapidly to design, CAD systems can considerably enhance the flexibility of the design activity, enabling modifications to be made much more rapidly. Further, the use of standardized libraries of shapes and entities can reduce the possibility of errors in the design. Perhaps most significantly, though CAD can be seen as a prototyping as well as a drafting device. In effect the designer is modeling the deign in order to assess its suitability prior to full production.

COMPUTER INTEGRATED MANUFACTURING Integration of PROCESS TECHNOLOGY prior to the development of ADVANCED MANUFACTURING TECHNOLOGY have usually taken place within particular functional areas of manufacturing. For example, improvements in machining systems have mostly been confined to the factory floor. Integration based on AMT, however, enables, further blurring of the lines between areas and functions, for example, in the case of COMPUTER AIDED DESIGN (CAD) and manufacturing (CAD/CAM), where the electronic information created and manipulated in designing a product is then passed automatically to the computer controlled machinery required for producing it. This type of integration forms the basis of computer- integrated manufacturing (CIM) which can be defined as: The integration of computer based monitoring and control of all aspects of the manufacturing process, drawing on a common database and communicating via some form of computer network. At its heart CIM brings together two key aspects of manufacturing activity materials processing and information processing. Automation has already had a major impact on many of the physical transformation processes. CIM moves the emphasis towards indirect activities, many of which involve information processing or communication. The application of IT in these areas is beginning to contribute significant improvement in performance, although the degree to which CIM can have an impact depends upon

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reconfiguring both technological and organizational systems. The application of BUSINESS PROCESS REDESIGN is an important enables of this. Most models of CIM involve some form of stepwise or hierarchical arrangement of control, from low levels where invidiual elements (machine controllers, data collectors, etc.) operate autonomously but also communicate information to the next level which is responsible for the overall monitoring and control of level (for example, a manufacturing cell). Further up, a plant controller would handle the activities of several cells, coordinating their use of resources and monitoring their overall performance. Level foru would involve the integration of other key functional areas, for example, design and marketing, and would represent a shared information system of the kind represented by MANUFACTURING RESOURCES PLANNING (MRP). Level five would be an overall business systems integration, in which the financial and sales information would be linked into the manufacturing system, and level six would be the overall board level strategic view which includes long and short term perspectives, etc. As key enabling technology in all of this is the computer network which has the important architectural property that information can be shared throughout the system. Changes any where in the system will update the rest of the information in the system; thus the entire operation can be seen to behave as if it were a single, enormously complex machine. This is not, however, simply a centralizing and concentrating process; the key property of the networks which form the “nervous system” for CIM is the ability to be simultaneously highly centralized and highly decentralized. Thus the economies of shared resources and information can be added to those of local autonomy and flexibility in uncertain environments. CIM exemplified the distinction between “substitution” innovation and more radical and strategic innovation. CIM applications do not just offer considerable improvements in traditional ways of making things; they also open up completely new and often highly integrated options. CIM also differs from other technologies in having potential impact on indirect cost areas as well as direct costs. It contributes to better co-ordination; it tightens the linkages between previously separate elements in a production chain, it brings powerful planning and monitoring tools to bear upon the problems of production

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chain; it brings powerful planning and monitoring tools to bear upon the problems of production control, and it reduces the amount of paperwork required to maintain even a simple manufacturing system. Thus many of the traditional areas of overhead cost (which can often account for 40 percent or more of total product costs) can be reduced, adding further to the competitive benefits offered by CIM. Philips is a company which is committed to give its customers the quality and endurance per the products it offers. Philips plant has a central ‘Research and Development Lab (R&D)’ or drawing and design lab which was desk proof and centrally air-conditioned area where it professionals, multimedia exports and drawing and design specialist are engaged day and right to given their support to reach the organisational goals, as the company is certified by as OS 9000and ISO 9000 norms of international quality standards, this becomes highly important stage, which gives CAD support for the development, modification and designing of a product. There are about 30 computer units, incorporated with sophisticated software and integrated LAN which help the drafting, designing, modifying and prototyping of head lamps tail lights and other light equipments used in automobile industry. It is a continuous process as the trend changes, the competition is at its peak then the companies like Maruti, Telco, Opel introduces new models, also modify their existing models of cars, it becomes necessary and important to follow their guidelines time to time by the company.

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CENTRALISED R&D LAB Corporate Corporatelevel level

RR&&DD

Division DivisionXX

Division DivisionYY

The use of robotics at assembly shop to perform complex operations like application of adhesive on tail lamps is a part of productivity measure being adopted by the company. A lot of time and cost is thus saved by this process. Job rotations: Philips keep rotating the operators from one machinery to other and from one process to others, so as to make everyday perfect in all operations and to reduce boredom by giving a new job and work environment.

Ovens Mechanism The ovens placed in moulding shop are extremely beneficial to increased productivity as the sucking system inhales the plastic material automatically from the tanks and differ melting transfers the material to different machines. All this process is totally automated and a lot of man power has been reduced as the same time efficiency in operations have also increased.

Kaizen Activity A recent activity under Kaizen took place at Philips where employee and operations provided a solution to the scratch problem. Thus company encourages such activities. This initiative is very much related to productivity as this a reinforcement for a worker to

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give valuable suggestion and to bring into notice flows in process, as they get reward for this and mistakes other employees also. 5’ ‘S’ This conception from Japan has a very wide are of application and is very relevant for material management functions. 1. Seiri: It literally means sorting out. It professes sorting out the necessary items in the workplace, stores, etc. and discard them thus,vacating valuable space, reducing record keeping. Etc. 2. Seiton: it standards for systematic arrangement. This emphasises that we should arrange only necessary items in good order so that they can be picked easily. IN other words, it highlights the need for, A place for everything and everything in its place. 3. Seiso: It signifies spic and span workplaces and stores. It enjoins everyone to keep the workplaces completely clean and tidy so that there is no dusty anywhere. 4. Seiketsu: This principle conveys a serene atmosphere i.e. maintaining high standards of housekeeping at workplace and in the organization at all times. 5. Shitsuke: it implies sticking to self- disciplien without being prompted by supervisor or manager. Train people by setting an example so that everyone follows good house keeping discipline automatically. The company follows this app9roach very minutely and takes case of every aspect of this principles. The visual defect. Check system, placing of water foot- not provision, scheduled cleaning of machines and work place, disposing plastic scrap at the earliest, arrangement of raw material as well as finished good appropriately etc. are few activities that proves that the company’s approach is very positive and enhance productivity ultimately.

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Section: Moulding S. No.

Work Done

Usage of the work done

1.

Lock provided on large capacity Contamination due to threads and material storage bin (for

packing material avoided.

L&T) Dryer) 2.

Hook provided to hang separate size Easy to find, required size of pipe. pipe (like MTS, Breaded etc.)

Regular breaks The company provides 15 minutes break after every two hours to make worker feel comfortable and to give some relaxation as the work is of repeat nature kind is very complex.

Incentives schemes These work as one of the major factor for improving productivity as the worker tends to perform better when he feel that his better performance will be rewarded in any terms whether its money, gift or so we promotion. Philips also provides sales target/ production target incentives.

Different clip boards The company has placed several boards in the works area whi8ch display different jargon and motivational quotes one such example is of .

• Arithmetic of accidents Additions: Accidents add to pain of employees. Subtraction : Accidents substract the assets of the employees.

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Multiplication : Accidents multiplies the fears of all concerns. Division : Divides the pleasure of family •

Awareness is cultivated Case is observed Dare is exhibited in time.

MATERIAL STORAGE Philips finished goods are tail lights/head lights which are fragile in nature and the raw material or semi-product is also of complex nature so the company keeps these aspects in mind and ensures that there is no loss during handling the material and while storing the components. The basic storage devices used by the company are:(1)

Platforms: To keep the frame of tail light half frames of different sizes and specifications.

(2)

Cartons: To store wire assembly units.

(3)

Plastic Bins: To store finished goods i.e. tail lights/headlights wrapped up in a plastic polybag.

To store the indicators lights of different sizes and specifications. MATERIAL HANDLING Features of Material Handling Equipment Being Placed at Philips:•

Safe to operate and use

•

Noise free in operation

•

Should not generate fumes in operation

•

Should be flexible

•

Should be reliable and sturdy

•

Should be compatible with process requirement

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•

Principal Groups of Material Handling Equipment

•

Based on their usage, material handling equipment can be classified into the following groups.

Material Handling Devices At Philips the distance between two shops is not very considerable but layout is also complex at the same time. the material to be handled is usually light weighed in nature but is fragile as well. Some of the fixtures are also to be shifted to various shops from fixture designing shops which are relatively heavy in nature. The plastic resins, tail lights, head lights frames, glue bass etc. are some of material to be handled. So keeping above things in mind following are the material handling devices being used at Philips:1. Mobile Elevator: Placed at Metalizing shop for headlight lacquering. 2. Trolleys: To carry semi-finished goods like blinking lights wire assembly etc. 3. Lifts: To carry fixtures, metal sheet etc. to the store. 4. Belt Conveyor: To carry plastic polycarbonate and other plastic resins from material receiving store to raw-material store. 5. Folk Lift: To carry metal sheets.

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The vertical bars show the percentage of direct dispatches that were achieved. In the first 5 months of the operation, roughly 30% of dispatches from the Eastern region were direct from the plant; in 5 months this figure had improved to 55%. Even in the South, where the figure was far lower initially, the company moved from 0 to 10% in 5 months. In recent times, these figures have become even more impressive. If one were to analyse the costs involved, there would be huge savings as a result of direct dispatches. While the primary transportation cost increases, there is a complete elimination of warehouse costs, stock financing costs and secondary transport costs. Proper planning and handling is required for the purpose of achieving the right quality of output. The total inventory (material cost) for manufacturing products at Philips’s is between 70-80 % i.e. material to sale ratio is 70 to 80%. So inventory control is most important part for efficient running of the organization.

EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE In this part an attempt has been made to evaluate the performance of management of inventory system at Philips India Ltd. Ratio analysis is used for making this evaluation. The ratios for the last five years have been worked out and compared to draw conclusions. The various figures required are given below: 2005-

2006-

2007-

2008-

2009-

2006

2007

2008

2009

2010

Average Inventories

1352

1566

1862

2945

3673

Total Current Assets

3367

4131

4117

6512

6925

Cost Of Goods Sold

6409

5923

10789

16767

17940

0.40

0.38

0.45

0.43

0.53

4.72

3.81

5.76

5.69

4.88

RATIOS Inventory To Gross Working Capital Inventory Turnover Ratio

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Inventory Conversion

77

97

64

65

75

Period(days)

INVENTORY TO GROSS WORKING CAPITAL Inventory to gross working capital ratio goes down in the year 2009-10 as compared to 2008-09. It increases in the year 2007-08, but there is an sharp increase in the year 2009-10. Keeping in view the above position, the firm Philips Inida Ltd. should keep on going due importance to inventory as to reduce costs.

INVENTORY TURN OVER RATIO This ratio has been decreased from 4.72 in 2006-07 to 3.81 in 2007-08 and then increased to 5.76 in 2007-08. Then it decreased to 5.69 in 2008-09 but it again decreased to 4.88 in 2009-10. On going through this ratio we observed that the firm was maintaining its inventory at most minimum level in the year 2007-08 and 2008-09 as the inventory turn over ratio was much high as compared to other years. Steps should be taken by the firm Philips Inida Ltd. to increase the inventory turn over ratio for better management of inventories and reduce the cost of inventory.

INVENTORY CONVERSION PERIOD It refers to the period that manufacturing unit takes to clear a lot of stock. There has been increase in the inventory conversion period for the first year. It increases from 77 days in 2008-09 to 97 days in 2009-10. Thus it remains constant in 2002-04. It is desirable to have short conversion period because it will help in reducing accumulation of inventories.

SUPPLY CHAIN MANAGEMENT IN PHILIPS Supply chain management operation at Philips India – how it was implemented and what benefits it has yielded for the firm. Three years ago, despite the fact that Philips India was going through difficult times, the firm continued to remain cash rich. Salaries to employees and payments to suppliers were not delayed, and borrowings were actually

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lower, especially during the previous twelve months. The main reason that made this possible – despite the six businesses spread across 8 manufacturing locations – was the immaculate handling of the. supply chain by business heads

The figure alongside depicts the manner in which Philips effected reductions in the cycle time by getting the ‘waste’ out. Conceptually, there is a difference between a supply chain and a value chain. The broad horizontal arrow at the top of the figure depicts the value chain with three distinct heads – defining, creating and communicating the value and these are all goals to be achieved. A firm can make a great product, deliver it very well, but it may still not find customers. It must define the value proposition; identify the customer, and communicate that value. The supply chain is the process ‘in between’ i.e. the process of creating the value. This involves a product creation process, a sourcing process, and a make-and-deliver process. The goal of supply chain management in terms of the flow of goods (from suppliers to customers) is ‘cycle time reduction’. In terms of money flow (from customers back to the suppliers), the goal is ‘cycle time reduction in receipts and payments’. For instance, in a 70

multi-business multi-location company, money needs to be moved through 6,000-14,000 people down to the suppliers. Finally, there is information flow (which, as depicted in the figure above, is in both directions) where the goal of SCM is to ensure speed, efficiency, and integrity of information. These are the goals any organization must aim for.

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The inventory turn over ratio can be further subdivided into the following ratios: Years

Raw Material

2005-

2006-

2007-

2008-

2009-

2006

2007

2008

2009

2010

3.05

3.12

1.0

2.41

1.57

32.44

23.04

38.14

51.47

46.57

17.49

12.60

17.49

21.47

18.27

120

98

365

151

232

21

29

21

17

20

Inventory Turn Over Ratio WIP Inventory Turn Over Ratio Finished Goods Inventory Turn Over Ratio Average Age of R.M Inventory Average Age Of Finished Goods 1. RAW MATERIAL INVENTORY TURN OVER RATIO: This ratio varies slightly from 3.05 in 2008-09 to 3.12 in 2009-10 and 1.0 in 2007-08. Again it increased to 2.4 in 2008-09. But in 2009-10 it sharply decreased to 1.57. It is better to have a greater raw material turn over ratio. 2. WORK IN PROCESS INVENTORY TURN OVER RATIO: Taking a general view of this ratio over a period of five years it does not seen stable and comparable to another year.

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3. FINISHED GOODS TURN OVER RATIO: This ratio has decreased from 17.49 in 2008-09 to 12.6 in 2009-10. It showed a large amount of finished goods had remained idle for most of the period. The firm should device methods to improve this ratio because this ratio adversely affects the other ratios. 4. AVERAGE AGE OF RAW MATRIALS IN INVENTORY The analysis of five years does not reveal any bright picture of raw material in stock. Only in the year 2009-10 the average age of the raw material in the stock reduced drastically to 98 days. The firm should reduce the average age of raw material in stock for better utilization of material with less investment. AVERAGE AGE OF FINISHED GOODS INVENTORY: The period for which the finished goods remain in stores is almost constant except in the year 2008-09. The decrease in that year was due to less realization of payments. Management should take steps to reduce this period. On the whole the analysis shows that the inventories are not being managed as effectively as it should be. The organization should adopt various techniques like ABC analysis or other inventory models to reduce inventory. Proper care should be taken for handling raw materials and finished goods so that the losses are minimized. This will eventually result in higher inventory turnover. Special attention should be paid to finish goods lying in stores. More attention is required in the inventory control and general stores where raw material and consumable articles are often found continuously growing. Therefore, overall reductions are of the order of 60-70%. Philips India’s inventory movement over the last 14 quarters has also reduced by 5-6 percentage points (from 12% to about 7% of the moving annual turnover). This translates into a saving of almost Rs 45 crores.

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SUPPLY CHAIN MANAGEMENT OPERATION AT PHILIPS INDIA

PIL scrutinized the best SCM practices across the world and carefully studied the SCM models of successful companies such as Dell Computers. The company decided to use the Supply Chain Operation Reference (SCOR) SCM model for restructuring its supply chain. According to the model, a supply chain is broken down into four different processes - planning, sourcing, making and delivering. These four processes are supported by a set of performance metrics, such as customer service, costs, flexibility, and assets. Using this framework, PIL worked out a mechanism to assess itself on a ‘process map,’ which it referred to as the ‘maturity grid’. As per this grid, there are four distinct stages of maturity during the life of an organization. 

The informal organization - Focuses on procedures and quality systems. Here, the supply chain is not explicitly broken down (Step 1, 2, 3).



The functional organization - Here, the various functions (such as purchasing, warehousing, marketing and manufacturing) are tied together. However, no person is responsible for the goods’ flow (Steps 4, 5, 6).

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

The integrated organization - In this case, the entire source-make-deliver chain is integrated either in teams or under the supply chain manager of the organization, who is responsible for the flow of goods (Steps 7, 8, 9).



The extended enterprise - The topmost stage including suppliers of the immediate supplier and customers of the immediate customer, are all linked by the upstream and downstream flow of products, services and information (Step 10).

The efficacy of a company’s supply chain increases as it moves in stages from being an informal organization to becoming an extended enterprise. PIL took points 1, 4, 7 and 10 in the figure given above as its benchmarks2. Philips NV’s global lighting and semiconductors business was rated between 6 and 7. Thus, the SCM exercise at PIL was largely aimed at attaining the above benchmarks. PIL’s SCM implementation initiative was spread over two phases. The first phase was from 2009 to early 2010 and the second beginning in mid 2010. In the first phase, the company closed down its regional distribution points, reduced the number of sales depots from 37 to 29, consolidated its manufacturing locations to just four plants and implemented CTV production in-house in Pune. Commenting on the decision to prune manufacturing bases, K R Raj, General Manager, (SCM - CE Division, PIL), said, “The company still believes in a single manufacturing location to have better control on all processes like quality, supply chain. However Philips still would like to capitalize on the government benefits that are offered in few states like Punjab, UP and WB. Hence it is required to maintain production facilities in these places to cater to the local sales demand for high runners.” The PIL management broke down its value chain3 into three distinct steps - defining the value, creating the value and communicating the value. PIL decided to focus on the value creation stage, because the company believed that even if it had a great product and a well-defined distribution setup, it could fail to attract customers if there wasn’t any ‘value benefit’ associated with the product. Moreover, as the value creation process involved product creation, sourcing, and making-delivering, PIL could easily build on its supply chain efficiencies to effect enhanced value creation.

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Next, PIL identified reduction in the cycle time4 of its activities as a primary step to eliminate any wastages. The company began the cycle time reduction exercise at its lamp production units. The rationale for starting with the lamps unit was the successful completion of such an exercise at the parent company Philips NV in 1999. See Figure II for a typical supply chain for lamps. Components sourced either through imports or locally are converted into finished lamps, which then enter the warehousing-distributiontrade-end user chain. Cycle time can be reduced by reducing the horizontal cycle time (time spent during the flow of goods from one point to the other) and/or by reducing/eliminating the vertical cycle time (denoting zero movement of goods). As per Philips NV’s experience, the vertical cycle time usually locked up a significant amount of money and resources. While, the parent company’s cycle time was 98 days - horizontal cycle time of 29 days and vertical cycle time of 69 days. In 1999, Philips NV began working towards reducing this by 70% over 4 years.

By 2010, the company had successfully completed 50% of the target. This exercise covered the entire supply chain including production centres, warehouses and distribution centres. PIL also replaced the existing multi-stage distribution chain (factory-warehousecoupling plantwarehouse-retail store) setup for its lamps with direct shipment of products 76

to consumers. This move was expected to save costs as a result of direct dispatches. Although primary transportation costs increased in this, the company will be able to completely eliminate costs of warehousing, stock financing and secondary transport. Commenting on the changes brought about in the goods flow model, General Manager (SCM, CE Division), K R Raj said, “The objective to restructure the goods flow model is to radically rationalize the manufacturing bases at Philips. To meet the target, we have adopted a model of mother warehouse at Pune which caters to all India requirements. There has also been a major realignment of sales depots countrywide and an elimination of grouping centers and distribution centers which were stocking and distribution points. We have 29 depots spread across the country. There has also been drastic cuts in the transit times and the handling of sets have reduced considerably.” In the earlier setup, the 3,000 dealers and distributors placed orders with 17 sales branches to forward to 29 depots across the country. (Both sales branches and depots were connected to each other through a J.D.Edwards ERP package.) Based on these orders, invoices were made and goods distributed. In the new setup, all goods from the three manufacturing bases were sent to the mother warehouse in Pune, and then distributed to the 29 sales depots across the country. Philips also initiated a data warehousing exercise to source information from internal sources, secondary distributors as well as from the competitors. This information was to be made available online, integrated with a web-based supply chain. The idea was to recognize and address problems in forecasting customer orders. REAPING THE BENEFITS PIL benefited in many ways from the revamped SCM practices. Transit time was reduced to 7 days and goods were handled only 5 times. As against a first quarter working capital of Rs 500 million for 2009, the figure was only Rs 200 million in 2010. Significantly, supply chain costs were reduced by 26% in 2010. A majority of these savings were due to the savings in transportation and warehousing. PIL could reduce warehousing costs because of the direct dispatch model, in which there were no grouping centers.

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PIL studied the results of the direct dispatch exercise region-wise. For the eastern region, around 30% of the dispatches were sent directly to customers in the first five months itself. In the next five months, this figure reached 55%. In the southern region, PIL moved from 0 to 10% in 5 months. The western and northern regions also recorded substantial improvements. Overall, PIL managed to reduce costs by 60-70%. Additionally, the company’s inventory movement reduced from 12% to 7% of the annual turnover, amounting to a saving of Rs 450 million. Moreover, PIL managed to reduce inventories by 35% (value terms) in 2010. By reducing supply chain costs, inventory costs and by negotiating favorable credit terms, PIL was able to reduce its working capital requirements, improve cash flows and reduce the interest burden. This system also improved the availability of goods to the market, which reduced the lead-time from order booking by the trade partner to the delivery of goods. Although PIL posted a net loss of Rs 211 million for the financial year ended December 31st, 2010, the notable point was that this was much lower than the Rs 342 million recorded in 2009. PIL managed to reduce losses largely due to the rationalization of operations, cost control and SCM initiatives. If one were to exclude the outgo of Rs 788 million on account of a voluntary retirement scheme, loss on sale of assets and decline in asset value, the company had an operating profit of Rs 387 million. Commenting on the SCM exercise, Raj said, “There has been a positive response from the trade on all the changes. The dealers are happy with the response time and the quality of deliveries. Consequently, sales have improved and this is also reflected in improvement in market shares in CTV and Audio segment. The supply chain restructuring exercise has definitely had a positive impact on the company’s financial performance, due to the reduction in supply chain costs and in inventory costs.” In 2010, Philips NV increased its holding in PIL to 92% and was reportedly working towards delisting it from the stock exchanges. By April 2002, PALI, Philips Glass Industries Limited (PGIL) and ELMI were merged with PIL. After this the company’s lighting business in India came under a single Philips entity. This move was a step towards integrating the operations and further improving the efficiencies across the 78

supply chain. S. Venkataramani, Executive Director and Head (Lighting Division) said, “The merger will integrate the manufacturing and logistics operations of the four entities under one legal entity. This will improve flexibility in portfolio management, enhance overall productivity and create manufacturing efficiencies. It will also enable economies of scale, simplify, and streamline administration.” In mid-2002, Ramchandran summed up the company’s strong belief in its efforts, “PIL expects market conditions to continue to be difficult and as a company we enter this year on a cautious note but are prepared for any situation.” 5.18 SUPPLY CHAIN OPERATION REFERENCE (SCOR MODEL)

The SCM model used by Philips is called Supply Chain Operation Reference (SCOR), which is a world standard, devised by eight companies. It includes performance metrics, standards, tools, best practices, reference manuals, etc. Philips NV has worked with them to create its own process called the ‘maturity grid’. SCOR essentially looks at the supply chain as four different processes – planning, sourcing, making and delivering (see figure

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alongside). Underpinning these processes is a series of measurement systems. These are further broken down - the arrow at the top is the planning process, the second block is the source-make-deliver process, and the bottom block depicts the measurement tools. For each of these, the planning and execution processes are broken down into 12 elements. One needs to describe the organization’s behaviour pattern at infancy, and the pattern for an extended enterprise in terms of world class operations. Thus, if one were to take this through 10 tiers (the approximate number of distinct functions within the organisation), with 12 elements in each, improvements will automatically begin to show. Of course, one must constantly measure the gap between where one is currently and where one intends to be. This calls for hard discipline and attention to detail. Philips went through this process and scrutinized best practices the world over. Dell, for instance, was an ideal example of an excellent SCM operation – accordingly, Philips’ lamps division started benchmarking against Dell. Closer home, there is a remarkable SCM system in place in the export of fresh flowers from India. Philips reasoned that if it is possible to move flowers and vegetables (with a shelf life of half a day) over thousands of miles, the same should be possible with other goods as well. There are four distinct stages of maturity during the life of an organisation: The informal organisation - where the focus is on procedures and quality systems, but the supply chain is not explicitly broken down The functional organisation - where the various functions (purchasing, warehousing, marketing and manufacturing) are knitted together The integrated organisation – the entire source-make-deliver chain is integrated either in teams or under the supply chain manager of the organisation, who is responsible for the entire flow of goods The extended enterprise - where customers are also brought into the system, together with the suppliers To ensure sustainable growth, one needs to move from the informal organisation towards the functional organisation, the integrated organisation and ultimately to the extended enterprise.

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FINDINGS INFERENCES AND RECOMMENDATIONS According to the annual survey of industries, material cost including cost of their transport to factory came to approx. 60% of the total production cost, which is further going to increase due to more competition in the mar'ket. Since material account for roughly 2/3 of the total cost of production, small changes in their cost can result in large sums of money saved or lost. Material management including inventory control is accordingly fruitful area for cost control and deserves careful attention. SCM emerged as an effective tool to reduce costs and improve manufacturing efficiencies for organizations that seemed to have exhausted all means of reducing costs including increasing manufacturing efficiencies and focusing on logistics management. SCM improves customer service, inventory management, transportation systems and distribution networks. In the traditional way of doing business, the functions of marketing, distribution, planning, manufacturing, and purchasing organizations operated independently along the supply chain. The conflicting objectives resulted in a lack of co-ordination that hampered the overall efficiency of the chain. Often, there is not a single, integrated plan for the organization. SCM is a strategic tool that helps organizations tie these functions together into an integrative whole. It can be defined as, ‘a systemic, strategic coordination of traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of individual companies and the supply chain as a whole.’ The inventory turnover rate in our country is quite low compared to other developed nations. It therefore entails considerable costs in the form of interest on capital, storage charges and losses on account of obsolescence. The average manufacturing company makes a profit of about 10% on its production cost. Since material cost amount approx. 70 % of the total production cost, slight reduction in it would exert enormous leverage on profit. If material costs are reduced by 3%, which is by no means difficult, the profit margin increases from 10 to 12 % and total profit go up by 21%. Any such saving in

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material cost is thus, the equivalent of raising sales by more than 20%. That being so every effort in the direction of reducing material cost, including cost of carrying inventories, is well worthwhile. Seeing the progress of this organization one can say that the procedures and inventory control system used for material management may be satisfactory. However, material manager cannot sit idle in spite of satisfactory results since there is tremendous scope for improvement in such a complex function. An idle system for an organization may not apply to another due to different operating environment, product, place etc.

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CONCLUSION In the light of the increasing pressure from competitors and industry slowdown, PIL had no option but to improve its operational efficiencies. PIL benefited in many ways from the revamped SCM practices. Transit time was reduced to 7 days and goods were handled only 5 times. As against a first quarter working capital of Rs 500 million for 2009, the figure was only Rs 200 million in 2010. Significantly, supply chain costs were reduced by 26% in 2010. A majority of these savings were due to the savings in transportation and warehousing. PIL could reduce warehousing costs because of the direct dispatch model, in which there were no grouping centers. By reducing supply chain costs, inventory costs and by negotiating favorable credit terms, PIL was able to reduce its working capital requirements, improve cash flows and reduce the interest burden. This system also improved the availability of goods to the market, which reduced the lead-time from order booking by the trade partner to the delivery of goods. Keeping pace with the modern times, the company has fully automated its inventory control system using state of the art computer system and data base management software packages. Certain areas of recommendations are as under: 1.

In order to prevent stock outs, certain minimum reorder levels should be fixed for all items.

2.

The ABC classification of inventory should be reviewed periodically to keep pace with the frequent changing electronic market.

3.

The selective control should be exercised in procurement of stores according to the ABC classification of stores with the view to reduce the inventory of class A while increasing of class C items. This will reduce inventory carrying and ordering cost.

4.

Investigation and analysis of existing inventory control system has lead to the conclusion that material requirement planning system be introduced in the firm for improved control of inventories.

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Following specific recommendations regarding various system parameters are being made at the culmination of the studies: 1.

Planning horizon of 3 months will be most appropriate for the firm. Tentative portion of planning horizon will be in addition to it, which can be for another 9 months.

2.

A bucket size of one week is most practicable.

3.

Weekly cycle of re-planning will be more suitable.

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SUMMARY OF THE PROJECT REPORT With revenues of Rs 16.65 billion for 2009-10, Philips India Ltd (PIL) had established itself as a leading manufacturer of consumer electronics and electrical goods in India. A subsidiary of the Holland-based Philips NV, PIL has dominated the Indian consumer electronics and lighting industry for more than six decades. PIL, with a product portfolio of audio systems, color televisions (CTVs), loudspeakers, printed circuit boards, various kinds of lamps, electronic components and electro-medical apparatus, had acquired considerable popularity and loyalty among Indian customers. PIL was established as Philips Electricals Co. (India) Ltd. in 1930 by Philips NV as a wholly-owned subsidiary. The company’s name was changed to PIL in September 1956 and it was converted into a public limited company in October 1957. After being initially involved only in trading, PIL set up manufacturing facilities in several product lines. PIL commenced lamp manufacturing in 1938 in Kolkata and followed it up by establishing a radio factory in 1948. It set up an electronics components unit at Loni, near Pune, Maharashtra in 1959. It began producing electronic measuring equipments at the Kalwa factory

in

Maharashtra

in

1963.

The

company

subsequently

ventured

into

telecommunication equipment manufacturing at a unit in Kolkata. During the 1980s, Foreign Exchange Regulation Act (FERA) regulations1 forced PIL to bring down the foreign share holding to 40%. Philips NV directed PIL to change its name to Peico Electronics & Electricals (Peico). However, Peico was allowed to sell its products under the ‘Philips’ brand. In May 1982, Peico acquired the Kolkata-based Electric Light Manufacturing Industries (ELMI) and made it a 100% subsidiary. In 1988-89, Peico recorded its first ever pre-tax loss of Rs 170 million, largely due to poor management and overstaffing. However, cost cutting, organizational restructuring and sale of real estate enabled it to post profits in the next two years. In 1993, its foreign equity stake was raised to 51% and the name was changed back to PIL. By the late 1990s, PIL had five manufacturing units situated in Salt Lake, Kolkata (for CTVs), Pimpri (near Pune for audio products and industrial lighting), Kalwa (near Thane for electrical lighting), Kota (in Rajasthan for picture tubes) and Loni (in Maharashtra for electronic components). 85

In 1997, Philips NV restructured its business portfolios and processes worldwide. This had wideranging consequences for PIL’s operations. The company examined the long-term viability and profitability of electronic weighing, plastic and metal ware businesses and critically reviewed manufacturing processes of the consumer electronics business, specifically the TV business, to cut costs and improve flexibility. Measures to this effect were put in place. In 1998, Philips NV increased its holding in its subsidiary Punjab Anand Lamp Industries (PALI) from 39.96% to 51%. With PIL holding around 28.8% in PALI’s expanded capital, the joint holding of the Philips group in the company increased to 79.8%.

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ANNEXURE IV. Proposal Title of the Project OPERATIONAL RESTRUCTURING THE PHILIPS INDIA WAY Need For the Topic Explore the benefits reaped by the company as a result on the value chain efficiencies through SCM and the contribution of SCM to the company’s survival and competitive advantage. Discusses the concept of supply chain management and the benefits of revamping the SCM practices. Methodology and procedure of work The information upon which this report is based has been derived from wide range of both primary and secondary sources. The facts and figures originate from extensive desk research of an array of publicly available information. Most of the data is collected from the field survey carried in the parts of some other areas of Delhi (NCR). STATISTICAL TECHNIQUES TO BE USED (IF ANY) This study will go in along way in helping the company in choosing the right strategy and taking the right decision. This study is restricted to parts of Delhi & NCR which may not seem to present the general picture of the product. All the retailers and farmers were not covered because of the constraints of time. The sample frame or size for evaluating may not completely reflect the market. The respondents may due to one or other reason, conceal the true facts, thus giving erroneous figures. Some respondents replied half-heartedly.

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CHAPTERISATION S.No.

Topic

1.

Introduction

2.

Objectives and Scope

3.

Company Profile

4.

Limitations

5.

Theoretical Perspective

6.

Methodology Procedure of Work

7.

Analysis of Data

8.

Findings Inferences and Recommendations

9.

Conclusion

10.

Summary of the Project Report

11.

Annexure i. Proposal ii. References

V.

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GUIDE’S RESUME Name

:

Mr. Abhishek Yadav

Address

:

H. No.5 Arjun Nagar Near SD Market, New Delhi-110029

Qualification

:

BBA & MBA.

Job Profile

:

(Accumulated Experience-5 year’s 5 months)

Organization

:

Philips India. New Delhi.

Designation

:

Finance Manager,

Work Experience

: Planning and development Take responsibility for overall management and delivery of the business plan. In conjunction with the governing body, draft, monitor and assess the business and development plan Assess options for co-ordinating the activities, procedures and systems so as to promote common policies and practices. Manage the development of the service to ensure that the promotion of equality of opportunity and challenging discrimination are central to strategic development, management and its services to clients. Maintain day-to-day financial control of the service within budget heads agreed by the trustee board. Ensure that all finances are properly administered and monitored, Including credit control. Support the Honorary Treasurer in the provision of information for the estimates. Advise on the proper allocation of resources. Ensure that appropriate financial regulations and controls are in place and in use at all times.

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Prepare and review detailed budgets for approval by the governing body in conjunction with the Honorary Treasurer and/or appropriate Sub-Committee. Make regular reports to the governing body on income, expenditure and any variations from budgets. Ensure that all financial reporting obligations are met in relation to submissions for funding, for grant aid, for contracts and any other initiatives. Act as cheque signatory for and authorise expenditure up to limits as agreed by the governing body

(Mr. Abhishek Yadav)

90

VI. References 

Philips India, Strategic Management Case Studies On Indian Companies - Volume III,



ICFAI, January 2000.



Kapoor Neha, Philips will be a lot more aggressive, Business Line November 08, 2001.



Mentzer T. John, Supply Chain Management, Response Books, 2001.



Philips net loss at Rs 21.15 crore, The Tribune, February 13, 2002.



Mehta Mona, Philips’ Supply Chain Initiatives: Towards A Sound Strategy, Financial



Express, April 6, 2002.



Surendar T. The Exit Option, Businessworld, May 20, 2002.



Ramchandran K, The Power of an Efficient Supply Chain, www.ima-india.com



SCOR Can Help Analyze Your Supply-Chain Operation, www.isr.umd.edu



www.indiainfoline.com



www.philips.co.in



www.lq.ca



Logistic support and Material Management.



Inventory Management in India, by R.S. Chadha.



Inventory control techniques by AH Lines and Jason Beart.



Inventory control theory and practice by Martin K Starr Daniel W Miller.



The theory of Inventory Management by Thomson Whiteline.



Industrial Engineering and Management by O.P. Khanna.

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

Gupta, D.R. & Rajpur R.K. (1982), “ Purchasing and Store Keeping”, Tata McGraw Hill Publishing Co. Ltd., N. Delhi.



Monks, G. Joseph (1985), “Operations Management Theory and Problems”, McGraw Hill Book Company, New York.



Sandilya M.S. & Gopala Krishnan P. (1981), “Inventory Management: Text and Cases”, Mac Millan India Ltd. Delhi.

Swami, H.R. (1987), “ Materials Management In Public Undertaking”, 1987 , Ashish Publishing House, N. Delhi.

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