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dealers, warehouses and customers alike. In fact, adoption of good supply chain management
practices is further necessitated by use of Total Quality (TQ) practices. Most of the
international quality system standards today lay down specific criteria for selection, rating and
assessment of vendors. Needless to say, supply chain management practices would have
marked effects on physical distribution processes including material handling, storage and
delivery systems, layout considerations, say, on-line delivery of parts. So, in a nutshell,
change in supply chain management practices effects a wider, more than expected, spectrum
of operations ranging from layout engineering, operations flow planning and control, material
planning, storage and delivery and also quality assurance till the finished goods are
transported to warehouses, distribution / retailing centers and finally customers. Michael
Porter (1985) has thus, been right in identifying in-bound logistics and outbound logistics as
primary activities of value chain being controlled by cross-functional support activities of
which procurement of materials is one. Manufacturing batch sizes in layouts having process
orientation and line balance and flow rates in layouts having product orientation could affect
SCM practices. In fact, volume and process variability have been identified as root causes of
unnecessary supply chain cost and variation. It has now been widely researched that contrary
to American automakers, Japanese and Korean auto-manufacturers have their production and
material reports triggered by sales demand not forecasts. (Ahmadian and Afifi, 1990) This
implies that planning, replenishment, traffic and distribution of stock is based on orders
entirely triggered by customers demand. This has been referred to as demand-driven supply
chain and is a foundation for lean supply chain. A demand driven supply chain would aim
to move from long manufacturing and delivery lead times to short ones and replacing batch
processing with flow processing preferably using group or cellular technology (GT) which
facilitates high speed supply chain. Ensuring single piece flows in a lean manufacturing
environment would always highlight the value-flow across internal/external supply chain
members.
It is now well established that Japanese and Korean automakers represent classic
examples of integrating supply chain with their plant and customer requirements. Schonberger
(1982) has enumerated some characteristics of world class firms trying to manage suppliers
towards stock reduction and short manufacturing and delivery lead times. Leading consultants
like KPMG (1997) and Mc Kinsey (1992) have also enlisted some key performance
benchmarks in world class firms following SCM. The present paper deals with an insight into
key attributes and performance benchmarks of using supply-chain management practices in
some leading Japan and Korea collaborated automobile units located in India.
LITERATURE SCAN :
Beamon (1999) presented a number of characteristics that are found in effective performance
measurement systems for SCM. Camp (1989) has provided a comprehensive treatment of
benchmarking for best practices related to superior performance.
In order to study the large number of supply chain performance measures available,
researchers have categorized them. Neely, et. al. (1995) presented a few of the categories
namely quality, time, flexibility and cost. The SCOR (Supply Chain Operations Reference)
Model of the Supply Chain Council suggests metrics related to reliability (on-time delivery,
order fulfillment lead time, fill rate), Flexibility (supply chain response time and upside
production flexibility), Expenses (all SCM costs, warranty cost as a percentage of revenue and
value added per employee) and assets/utilization (total inventory days of supply, cash-to-cash
cycle time and net asset turns).
time
(iii)
customer responsiveness
(iv)
(v)
Costs may include inventory costs and other operating costs as procurement,
manufacturing and distribution cost. Customer responsiveness measures include lead time,
on-time and available-to-promise (ATP) delivery, stock-out probability and fill rate.
Interestingly Lee and Bellington (1992) also cite a number of trade-offs that a corporate might
have to do for best results from a supply-chain. These are lot size inventory trade-off,
inventory-transportation cost trade off, lead-time-transportation cost trade-off, product variety
inventory trade-off and production and distribution costs customer service trade-off.
Various measurement categories and corresponding criteria are summarized in Table 1.
Table 1 :
Sr.
No.
1.
Performance
Measurement
Categories
Cost
Corresponding
Researchers
Key Parameters
Customer
response
time
manufacturing
lead
time,
available-to-promise
(ATP)
performance, order fulfillment
cost.
3.
Cost
and Christy and Grout (1994)
Customer
Cook and Rogowski (1996)
Responsiveness
Davis (1993)
Stott
Wikner,
(1991)
Towill
and
Vasko
and Naim
4.
Customer
Responsivess
5.
Flexibility
Voudouris (1996)
follow a practice. A 5-point equal-interval rating scale is used to represent degree of presence
of a particular supply chain attribute in a company. The results are tabulated in Table 2 and
Table 3.
INTERPRETATION :
It is clear from Tables 2 and 3 that the select companies have significantly followed supplychain management practices, vendor integration and consolidation strategies. These
companies are common in aiming for :
i) High level of sole-sourcing.
ii) Having most vendors located proximally.
iii) Better span of control for their purchasing executives for better follow-up, expediting
and control.
iv) Reduction of delivery lead time with vendors.
v) Keeping vendors informed about production schedule changes on a regular basis.
vi) Minimum lead time in placing orders with vendors.
vii) Higher level of strategic alliances with suppliers including Joint Ventures (JVs).
viii) Giving preference to vendors having material planning and information systems and
on-line access to production schedules of OEM purchasing companies.
ix) Need for less frequent contract reviews / negotiations and encouraging blanket
ordering.
x) Preferentially selecting vendors with ISO 9001/02 quality assurance systems.
xi) Giving flexibility to vendors in design change, process improvement and cost
reduction.
xii) Encouraging vendors to supply on-line and in small frequent lots.
xiii) Assisting vendors in reducing their manufacturing lead times.
xiv) Vendors assistance and development schemes for joint collaboration.
xv) Development of supplier quality assurance systems and practices.
xvi) Reduced followup and expediting efforts with vendors.
xvii) Simplifying and consolidating logistics operations and practices.
The selected companies however, lacked in :
i) Following strategic classification of materials
ii) Controlling late deliveries from vendors which still cluster around 15%
iii) Controlling rejects from vendors as lot control systems / acceptance sampling plans
are inadequate or are not properly contractually obligated. Rejects still hover around
5%.
iv) Controlling number of line stoppages due to material / component shortages.
v) Extensive strategic partnerships / alliances in form of coalition / joint ventures
vi) Preferential selection of vendors with QS-9000 and ISO 14001 system
vii) Encouraging more vendors to follow recirculatory packaging and handling and
enabling them to deliver right on / near the line (JIT II)
viii) Giving vendors more design and processing flexibility i.e. focusing on performance
specifications rather than design specifications.
ix) Properly arbitrating contractual clauses so that disputes related to cost, quality and
delivery are reduced
5
Table 2 :
Honda-Siel
MUL1
HML2
2. Maintenance of Approved
Supplier List
5. Assignment of minimum
suppliers to each purchasing
executive
6. Maximising percent
components sole-sourced
.
.
3
.
2
TKM3
Daewoo
Honda-Siel
MUL1
HML2
TKM3
MUL1
HML2
Daewoo
Honda-Siel
TKM3
MUL1
HML2
TKM3
Daewoo
Honda-Siel
10
Daewoo
Honda-Siel
MUL5
HML6
TKM7
KEY PERFORMANCE
PARAMETERS
i) Minimum number of
suppliers per part
ii) Maximum number of
suppliers per part
iii) Approximate number of
suppliers per purchasing
executive
iv) Percent components solesourced
v) Percent suppliers located
within 100 kms
vi) Minimum lead time with
suppliers
vii) Maximum lead time with
suppliers
viii) Time spent in placing the
order with vendor
ix) Average percent late
deliveries
x) Maximum percent reject
material
xi) Average time in line
stoppages due to material
shortage per month
xii) Average time stock
overflowing of A class
items in a year
Daewoo
01
HondaSiel
01
MUL
HML
TKM
01
01
01
02
01
03
03
02
08
07
05
07
03
95%
95%
15%
75%
95%
80%
80%
80%
75%
90%
1 week
1 day
2-4hrs
3 days
2-3hrs
4 week
6days
10 days
1 week
1-3 days
1-3 days
1 day
1 day
35%
10%
3hrs day
10%
15%
15 min3-4 hrs
5%
15%
05%
2.5%
3%
2%
20 min
5-10
min
120 min
60 min
45 min
10
12
10
12
11
KEY PERFORMANCE
PARAMETERS
xiii) % Blanket Orders of Total
orders
98%
HondaSiel
98%
95%
90%
95%
1/month
1/month
1/month
1/month
1/month
Not
known
80%
70%
70%
60%
90%
5%
10-15%
Below
5%
5%
20%
Nil
Nil
A few
Nil
A few
2%
70%
70%
50%
80%
30%
50-60%
30%
40%
60%
2%
Negligible 60%
30%
90%
xxii)
Daewoo
MUL
HML
TKM
Normally
Frequency of contract -----------------------------once a year----------------------------------reviews / negotiations
3%
5%
5-10%
3-5%
2-3%
5%
20%
80%
40%
90%
5-10%
15%
15%
10%
15%
(These responses are as collected from material and purchasing executives of respective
companies and may not represent company postulated standards/practices).
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