E EXECUTIVE SUMMARY

The project report on Organization study, with a topic Supply chain Management is
undertaken at united precision tooltech PvtLtd Dharwad.UPT is a company associates from
very high Machine Tools and Tooling Systems field with proven abilities and expertise. UPT
management with its modern manufacturing facilities is today set to offer world-class Tooling
and System with uninterrupted supply chain forming core partners of productivity of every
machine tools, auto-components and systems and general industries in the country . The
methodology of the study includes interactions with the departmental heads, and the other
employees of the organization. This report contains the overview of UPT and its functional
departments and inventory management in UPT. UPT is engaged in manufacturing of
MACHINERY INNER TOOLS.

Every organization needs supply chain management for smooth running of its activities. It
serves as a link between supplier, manufacturer till to the customer. Supply chain
management (SCM) oversees and optimizes the processes of acquiring inputs from suppliers,
converting those inputs into a finished product, and delivering those productsor outputs
to customers. SCM is an umbrella term that refers to a variety of approaches for the
management of natural and human resources from the supplier to the manufacturer or service
provider to the consumer and back . This includes the identification and creation of new
opportunities for products and services in cooperation with upstream and downstream
partners, and the involvement of internal as well as external stakeholders in decision making
on supply chain matters.

Supply chain thinking is an application of systems thinking and provides a basic for
understanding processes that cut across a companys internal department and processes that
extend outside the company as well.The goals of supply chain management are to reduce
uncertainty and risks in the supply chain, thereby positively affecting inventory levels, cycle
time, processes and ultimately end-customer service levels.The design, planning and
operation of supply chain have a strong impact on overall profitability and success. Supply
chain management has become a hot competitive advantage as companies struggle to get the
right stuff to the right place at right time. Supply chain management includes transportation
vendors, suppliers, distributors, banks, credit and cash transfers, bills payable and receivable,
warehousing and inventory levels, order fulfillment and sharing customer, forecasting and
production information.

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Supply Chain management (SCM), has now became a very vital part of management. Good
Supply Chain Management can result in

- Decreases Cycle Time

- Reduces the inventory level
- Decreases cost of production
- Let you decide strategy

The study starts with an introduction to Company, Companys profile, its Vision &
Mission, Achievements and also the need for study, review of literature and objectives are
set out for the study. Research methodology, Data analysis & Interpretation, Findings and
Suggestions of the study follow.

One of the main areas of the project is the analysis part, where the data are
analyzed & interpreted, to find out how the supply chain management activities are carried
out in united precision tooloings pvt ltd .

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DECLARATION

I Vishwanath M Patil student of MBA IV semester kousali Institute of

Management Studies and Research, Dharwad thank my institution for giving me an
opportunity to undergo my project work.

I had been for my project work at United Precision tooltech Pvt ltd Dharwad.
I hereby affirm that this project report on A study on Supply chain management With
special reference to United precison tooltech company ltd has been undertaken by me
during 20th March 2017 to 18th May 2017 as a part of my academic curriculum.

I further declare that this project report is the result of my own efforts and has not
been submitted earlier to any other college for any other degree

Place: Dharwad

Date:

VISHWANATH M PATIL

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ACKNOWLEDGEMENT

I sincerely acknowledge the help I received from various person & sources in collecting the
data information in completing this satisfactory project. The project entitled A Study On. A
study on Supply chain management With special reference to United precison tooltech
company ltd

First of all, I would like to express my great respect to Mr. Gurmeeth singh (General
manager of UPT) for guiding me in the organization. For his valuable support, guidance,
constructive suggestions, keen interest regardless of his busy work, which helped me to
complete this project successfully.

I am grateful to Director, Kousali Institute of Management Studies & Research,

Dharwad for providing me an opportunity to undertake this project.

I also thank to our internal guide, Prof. A.M. KADKOL, for spending his valuable
time with me and helping me in drafting report.

Last but not least, I would like to thank my family members and my friends who
helped me during my project work.

Vishwanth M Patil

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Chapter -1

INTRODUCTION

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Problem statement

Lack of supply chain management practices in a company may lead to

decrease the competitiveness of a company, as a result losing its profitability.

REVIEW OF LITERATURE

INTRODUCTION

This chapter begins with briefly mapping the SCM journey. The chapter proceeds by noting
from the extant literature, the conceptual studies made by earlier researchers in the area of
SCM from the perspective of the OEM and the other entities of the supply chain considered
in this study. This is followed by highlighting the research conducted in India on SCM. The
chapter concludes by noting the findings from the literature review and the motivation for the
current study. The terms factors, critical dimensions, and constructs have all been
synonymously used in this study. Similarly, the terms supply chain partners and trading
partners have been synonymously used in this study.

EVOLUTION OF SUPPLY CHAIN MANAGEMENT

The origins of the concept of SCM are unclear, but its development was initially along the
lines of physical distribution and transport (Croom et al 2000) based on the concept of
Forrester (1961), who identified the dynamics of response to changes in demand in supply
chain situations. Forrester introduced a theory of management that recognized the integrated
nature of organizational relationships in distribution channels. Another

Research article
Title:
Defining Supply chain management
Author:James.s.keebler
This research explains about management construct cannot be used effectively by
practitioners and researchers if a common agreement on its definition is lacking. Such is the
case with the term supply chain managementso many definitions are used that there is
little consensus on what it means. Thus, the purpose of this paper is to examine the existing

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research in an effort to understand the concept of supply chain management. Various
definitions of SCM and supply chain are reviewed, categorized, and synthesized.
Definitions of supporting constructs of SCM and a framework are then offered to establish a
consistent means to conceptualize SCM. Antecedents and consequences of SCM are
identified, and the boundaries of SCM in terms of business functions and organizations are
proposed. A conceptual model and unified definition of SCM are then presented that indicate
the nature, antecedents, and consequences of the phenomena.

Research article
Title: Supply Chain Management :A structured review and implication of future
reserach
Journal Issue:
Journal of supply chain management 12(3)September 2006
Author: Kevin Burgess,Prakash singh

The field of supply chain management (SCM) has historically been informed by knowledge
from narrow functional areas. While some effort towards producing a broader organizational
perspective has been made, nonetheless, SCM continues to be largely eclectic with little
consensus on its conceptualization and research methodological bases. This paper seeks to
clarify aspects of this emerging perspective.
A number of key findings emerged: the field is a relatively new one; several disciplines
claim ownership of the field; consensus is lacking on the definition of the term; contextual
focus is mostly on the manufacturing industry; predominantly process conceptual framing
prevails; research methods employed are mostly analytical conceptual, empirical surveys or
case studies; the positivist research paradigmatic stance is prevalent; and theories related to
transaction cost economics and competitive advantage dominate.

REVIEW OF LITERATURE ON SUPPLY CHAIN MANAGEMENT: INDIA

PERSPECTIVE

A survey of North American LSPs (Bagchi and Mitra, 2006)42 found that logistics managers
perceived internationalization of operations, industry focus or specialization, investment in
information systems, availability of skilled logistics professionals, integration of supply
chains, customer focus and breadth of service offerings as the most important factors for
success as a LSP. However, the survey identified significant gaps between expectations and
actual achievements of LSPs with respect to internationalization of operations, skilled
logistics professionals and integration of supply chains, which should be seriously looked
into by managers. The survey also established relationships among a set of performance
metrics and key success factors to identify significant predictor and criterion variables. One

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of the most important observations was that collaborative relationships with clients and
investments in assets are necessary but not sufficient conditions for success in logistics. The
findings of the survey may provide a useful guideline to logistics managers for allocation of
scarce resources.

Title: Supply chain management in SMEs

Journal Issue:Journal of supply chain management 12(3)September 2008
Author:Jitesh thakkar,arun khanda

The purpose of this paper is to review the literature on supply chain management (SCM)
practices in small and medium scale enterprises (SMEs) and outlines the key insights.
The paper describes a literaturebased research that has sought understand the issues of SCM
for SMEs. The methodology is based on critical review of 77 research papers from high
quality, international refereed journals. Mainly, issues are explored under three categories
supply chain integration, strategy and planning and implementation. This has supported the
development of key constructs and propositions.
The research outcomes are three fold. Firstly, paper summarizes
the reported literature and classifies it based on their nature of work and contributions.
Second, paper demonstrates the overall approach towards the development of constructs,
research questions, and investigative questions leading to key proposition for the further
research. Lastly, paper outlines the key findings and insights gained

RESEARCH ON SCM: PERSPECTIVE OF OEMs

Purchasing and Supply Management

Tan et al (1998b) suggested that a firms practice of SCM is reflected by its degree of
involvement in ten interrelated areas of supply basemanagement, supplier development and
customer-supplier integration, suchas establishing a quality assurance programme for a
suppliers product and, visiting the suppliers facility regularly and sharing sensitive
information with suppliers, etc.

Narasimhan and Das (1999) considered SCM practices as a set of activities related to
purchasing and supply base management, such as early supplier involvement in product and

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process design, supplier responsiveness to order volume and delivery changes, and use of
appropriate
measurement/reward systems in purchasing.Based on empirical studies, Carr and Smeltzer
(1999) studied therelationship of strategic purchasing to SCM. The factors of the study were
Level of strategic purchasing, Supplier communication, Supplierand Change in supplier
market. Their findings indicated thatstrategic purchasing is positively related to supplier
responsiveness, changesin the supplier market, supplier communication and firms
performance.Hsu et al (2006) developed and validated a supplier selectionmeasurement scale
with the following factors, namely, Supplier quality,Supplier service and Strategic
management fit.

Supply Chain Integration

Narasimhan and Jayaram (1998) considered two core elements,

namely, supplier integration and customer integration in their `decisionsoriented
framework of supply chain.
Frohlich and Westbrook (2001) conceived supply chain integration
as a set of activities that manufacturers use to integrate their operations with
both suppliers and customers. The activities include: access to planning
systems, sharing production plans, joint electronic data interchange (EDI)
access/networks, knowledge of inventory mix/levels, packaging
customization, delivery frequencies, common logistical equipment/containers
and common use of third-party logistics.
Dong et al (2001) referred to supply chain integration as a set of
decisions related to supplier management and coordination: using EDI,
information sharing (e.g. demand forecasts and costs), sharing joint cost
savings and working with suppliers to improve the management of their
(second tier) suppliers.
Lambert and Cooper (2000) adopted a process view of SCM and suggested that creation of
value requires the management and integration of
key business processes across the supply chain, namely, customer relationshipmanagement,
customer service management, demand management, orderfulfillment, manufacturing flow
management, procurement, productdevelopment and commercialization, and returns.
Das et al (2006) defined supplier integration as a state of
syncreticism among the supplier, purchasing and manufacturing constituents
of an organization, and operationalised supplier integration as a bundle of
18 practices that include internal and external practices. Their findings provided
empirical support for the concept of an optimal set of supplier integration
process.
Alvarado and Kotzab (2001) included in their list of SCM practices,
concentration of core competencies, use of inter-organizational systems such
as EDI, and elimination of excess inventory levels by postponing
customization toward the end of the supply chain.
Salvador et al (2001) focus on a firms interactions with its
suppliers and customers for managing material flow (e.g. the practice of
Kanban, EDI and JIT linkage) and for ensuring materials quality (e.g.
information exchange on quality).

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Title: A new introduction to supply chain management
Journal Issue:Jan 2014
Author:Aziz Muysinaliyev,sherzod aktamov

Supply Chain and Supply chain Management have played a significant role in corporate
efficiency and have attracted the attention of numerous academicians over the last few years.
Academic literature review discloses an important spurt in research in practice and theory of
Supply Chain (SC) and Supply Chain Management (SCM). Connecting and informing on
Supply Chain, Supply Chain Management and distribution Management characteristics have
contributed to the Supply Chain integration. This integration has generated the approach of
extended corporate and the supply chain is nowadays manifested as the cooperative supply
chain across intercorporate borders to increase the value across of the whole supply chain.
This paper seeks to introduce supply Chain and Supply Chain Management. A Supply Chain
and Supply Chain Management definition, theoretical, practical and measurement analysis
are proposed. Several randomly selected refereed academic articles were methodically
analyzed. A number of key findings have arisen: the field is a comparatively new one; several
researchers have different perception of the discipline; the consensus is lacking on the
definition of the terms: the Supply Chain and Supply Chain Management are widely defined;
contextual focus is mainly on the manufacturing industry; research methods employed are
mostly theoretical conceptual; the findings also suggest that undertaking a theory view could
make important contributions towards defining the scope of supply chains. The literature
review in this research proposes critical lexicons that are mostly used in academic
dissertation. These notions can be beneficial for academician or organizations that are involve
in Supply Chain Management business.

Title: Supply chain management:Its future implications

Journal Issue:July 20142002

Author:Mamum Habib

Researchers usually focused on Supply chain management (SCM) issues in profit

organizations during last decade. Research objectives may include adding value, reducing
cost, or slashing response time in various parties involved in the manufacturing supply chain.

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However, very few studies were attempted in non-profit organizations. An extremely scarce
number of research papers focused on SCM in the academia, states that a profit organization
attempts to maximize profits, whereas a non-profit organization considers monetary returns
of less importance. Their major objectives may include improved literacy rate, better quality
of life, equal opportunities for all genders or races, etc. The revenues gained by a non-profit
organization would be used primarily to balance the expenditure of the organization. Due to
conflicting objectives, managing a successful profit organization may be drastically different
from a non-profit organization .

SCM is needed for various reasons: improving operations,

better outsourcing, increasing profits, enhancing customer satisfaction, generating quality
outcomes, tackling competitive pressures, increasing globalization, increasing importance of
E-commerce, and growing complexity of supply chains. Supply chains are relatively easy to
define for manufacturing industries, where each participant in the chain receives inputs from
a set of suppliers, processes those inputs, and delivers them to a different set of customers.
With educational institutions, one of the primary suppliers of process inputs is customers
themselves, who provide their bodies, minds, belongings, or knowledge as inputs to the
service processes

Title: Performance metrics in Supply chain management

Journal Issue:June 2002
Journal of supply chain management 12(3)September 2006
Author:J P C klejien,M T smiths

This survey paper starts with a critical analysis of various performance metrics for supply
chain management (SCM), used by a specific manufacturing company. Then it summarizes
how economic theory treats multiple performance metrics. Actually, the paper proposes to
deal with multiple metrics in SCM via the balanced scorecard which measures customers,
internal processes, innovations, and finance. To forecast how the values of these metrics will
change once a supply chain is redesigned simulation may be used. This paper
distinguishes four simulation types for SCM: (i) spreadsheet simulation, (ii) system
dynamics, (iii) discrete-event simulation, and (iv) business games. These simulation types
may explain the bullwhip effect, predict fill rate values, and educate and train users.
Validation of simulation models requires sensitivity analysis; a statistical methodology is
proposed. The paper concludes with suggestions for a possible research agenda in SCM. A
list with 50 references for further study is included.

Title: Manufacturing and service supply chain performance

Journal Issue:October 2006
Author:Kaushik senugupta,daniel Heiser

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As the economy evolves from manufacturing to services, it is important to understand
whether the lessons learned in the manufacturing sector can be directly extrapolated to
service supply chains. Unfortunately, the majority of existing supply chain research focuses
exclusively on the manufacturing sector. To address this deficiency, this article compares the
effect of traditional manufacturing-oriented supply chain strategies on the operational and
financial performance of firms in both service and manufacturing sectors. The results
highlight similarities and differences between the two sectors demonstrating that effective
supply chain strategies in one sector may not be appropriate in the other sector. This suggests
that practicing managers should identify appropriate benchmarks and competitive priorities
before pursuing specific supply chain strategies. The insights provided by this research
should help guide companies toward strategies that may positively affect their specific
organization's operational and financial performance

Objectives of the study

o To have knowledge about the supply chain management procedures of UPT Pvt. Ltd.
o To bring balance between theory and practice the various techniques involved in
supply chain management.

o To give practical touch to the theory aspect which have studied in class room.
o To suggest if any suggestion to present supply chain and inventory management
methods.

Reseach Methodology of study

Descriptive type of Methodology using in this research

RESEARCH DESIGN: Research design was the basic framework that provided guidelines
for the research process. It was a map or blueprint according to which the research was
conducted.

SOURCE OF DATA COLLECTION: Data is the collection of the individual records in the
form of numerical, words..etc. for the evidence of research. This can be done using the
collection from different methods.

PRIMARY DATA:

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Interaction with external and Internal Guide which helped to the study and gets right direction
to the project. The primary data is collected through discussion and interaction
.

SECONDARY DATA:

This data is the satisfied not gathered from immediate study at hand but for some other
purpose. The secondary data for the study was collected mainly from, website

Duration of study : 8 weeks

Scope of the study

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.

The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply chain
management is a strategy through which such integration can be achieved.

Moreover, 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

13
 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 to meet or even exceed their customers' expectations.

The major objective of supply chain management is to reduce or eliminate the

buffers of inventory that exists between originations in chain through the sharing of
information on demand and current stock levels.

Broadly, an organization needs an efficient and proper supply chain management

system so that the following strategic and competitive areas can be used to their full
advantage if a supply chain management system is properly implemented.

1. Fulfillment of raw materials:

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.

2. Logistics:

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.

3. Smooth 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

14
 place will ensure that production can always run smoothly without delays due to ordering and
transportation.

4. Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the supply chain
improves a company 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 then companies without supply chain management thus increasing
the overall profit.

5. Reduction in Costs:

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.

6. Mutual Success:

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 suppliers 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 higher quality goods provided at a lower cost.

ACTIVITIES/FUNCTIONS OF SCM

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.

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(a) 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.

Products design coordination, so that new and existing products can be

optimally integrated into the supply chain.

Information Technology infrastructure, to support supply chain operations.

Where to make and what to make or buy decisions.

(b) Tactical:-
Sourcing contracts and other purchasing
decisions.

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.

(c) 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.

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 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.

FUTURE OF SCM

The most notable is Radio Frequency Identification, or RFID. RFID tags are
essentially barcodes on steroids. Whereas barcodes only identify the product, RFID tags can
tell what the product is, where it has been, when it expires, whatever information someone
wishes to program it with. RFID technology is going to generate mountains of data about the
location of pallets, cases, cartons, totes and individual products in the supply chain. It's going
to produce oceans of information about when and where merchandise is manufactured,
picked, packed and shipped. It's going to create rivers of numbers telling retailers about the
expiration dates of their perishable items-numbers that will have to be stored, transmitted in
real-time and shared with warehouse management, inventory management, financial and
other enterprise systems. In other words, it is going to have a really big impact.
The a b c...... D of RFID: "DATA"

In current systems, you may know there are 10 items on the shelf, and that
information is compiled in an enterprise planning software system. With RFID, you know
there are 10 items, their age, lot number, and expiration date and warehouse origin. It's like
knowing there are 1,000 people in a city. With RFID, you know their names. Think like you
are a HR manager of a global corporation who remembers all the employees by their names!!
Wouldn't that be great? That's the power of RFID- the DATA.

Radio frequency identification (RFID) can be broadly categorized as an 'e-tagging'

technology. RFID enables passive object tagging and automatic data capture, using RF
sensing as opposed to optical sensing in the case of barcodes. RFID is fast, reliable, and does
not require physical sight or contact between reader/scanner eliminating the problems
mentioned for barcodes. The range of sensing RFID tags from a reader varies from a few
centimeters to a few meters, depending on the frequency and the type of tags (active or
passive). The amount of data that can be stored inside RFID tag ranges from few bits to 1 MB
for active tags.

Benefits:

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 The main benefit of RFIDs is that, unlike barcodes, RFID tags can be read
automatically by electronic readers. Imagine a truck carrying a container full of widgets
entering a shipping terminal in China. If the container is equipped with an RFID tag, and the
terminal has an RFID sensor network, that container's whereabouts can be automatically sent
to Widget Co. without the truck ever slowing down. It has the potential to add a substantial
amount of visibility into the extended supply chain.

The benefits are divided into two parts

(a) Benefits to Organisation:
Inventory Management:-
Maintain a real-time view of tagged inventory as it flows through the
supply chain.
Track discrete movement of tagged inventory.
Trigger alerts around inventory movement based on business rules
you construct.
Allowing just-in-time practices.
Maximizing warehouse space:-

With the high costs associated with storage real estate, the goal is to maximize
warehouse space. This will improve utilization without undermining the ease with which
goods can be moved in and out.

Minimizing goods shrinkage:-

Theft combined with imprecise inventory management can create a significant

shortfall in actual versus expected goods available. Within the retail environment goods
shrinkage is widely perceived to account for up to one per cent of stock, representing a
significant dent in profit margin.

(b) Benefits to Consumers:

Value Innovation in customer service

Marks & Spencer, a British retailer, has just extended a trial in which tags are
applied to suits, shirts and ties for men, allowing retailers to monitor and replenish stock
levels with far more accuracy at the end of each day to make sure that every size, style and
color remains in stock. Beyond improving efficiencies, the smart tags could help to drive
sales. One example of improving customer service: a customer could take a tagged suit to a
kiosk, which could then suggest a matching shirt and tie.

Minimizing errors in delivery

Misdirected deliveries or incorrect orders can immediately result in on-shelf

out-of-stock situations leading to reduced sales and damaged customer relationships. Indeed,
for organizations relying on the delivery of specific components to fulfill their own order
schedule, such errors can have a serious impact on customer satisfaction.

RFID tags represent a significant step forward from traditional bar code
technology and offer highly reliable data most notably, the US Department of Defense
requires their suppliers to ship products with RFID tags from 2006 onwards. Therefore, the

18
 broad adoption of RFID is on its way. By 2010, RFID should be ubiquitous throughout
industries. Right now the two biggest hurdles to widespread RFID adoption are the cost of
building the infrastructure and the lack of agreed-upon industry standards.
Some Key technologies which are going to change the face of SCM in coming days are:
1. EDI (for exchange for information across different players in the supply chain);
2. Electronic payment protocols;
3. Internet auctions (for selecting suppliers, distributors, demand forecasting, etc.);
4. Electronic Business Process Optimization;
5. E-logistics;
6. Continuous tracking of customer orders through the Internet;
7. Internet-based shared services manufacturing; etc.

SUPPLY CHAIN MANAGEMENT PROBLEMS

Supply chain management must address the following problems:

1.) Distribution Network Configuration:

Number and location of suppliers, production facilities, distribution centers,

warehouses and customers.

2.) Distribution Strategy:

Centralized versus decentralized, direct shipment, cross docking, pull or push

strategies, third party logistics.

3.) Information:

Integrate systems and processes through the supply chain to share valuable
information, including demand signals, forecasts, inventory and transportation.

4.) Inventory Management:

19
 Quantity and location of inventory including raw materials, work-in-process and
finished goods.

References

20
CHAPTER 2
CONCEPTUAL
FRAMEWORK

21
Introduction to Supply Chain Management :-

Since the early 1980's, supply chain management has developed rapidly as companies have
been seeking to improve their competitiveness in respect of cost and service levels, and to
attain sustainable growth.

Supply chain management has gained increasing recognition in business, both as a function in
its own right and as a cross-functional discipline. At the same time, supply chain management
has moved from operational level to broad level within the corporate organization. Never
before the supply chain management played such an important role in the corporate strategy
of many companies as it is today. This development has led to a much broader scope in
supply chain management in the 1990's as compared to that of the 1970's.

With the logistics industry becoming more crucial as its relevance ever increasing it moved
into new areas, involved in outsourcing projects and design and implements supply chain
management strategies and enable enormous increase in output. Given the growing
importance of supply chain and logistics management, one has to determine how the
calculation of transport and logistics costs has changed over the last decades as a
consequence of improved supply chain management and the increasing significance of supply
chain management.

The concept of Supply Chain Management has recently stepped into the limelight of
corporate professionals and academia. However, its roots can be traced with the evolution of

22
trade itself. Evidences show that supply chains were present right from the time when
mankind understood the need of merchandising and distribution.

In fact now one of the strategies is to choke all the supply feeder lines, which either harbour
or encourage terrorism of any variety. This is referred to as 'Operation Endurance Freedom' in
the recent times.

We can characterize the significant events that reflect the evolution of the supply chain
management in a chronological manner. However, it is to be observed that the impact of each
event on Supply Chain Management (SCM) is varied. Change can be implemented easily
when tough times reign. Companies in India have been looking at ways of cutting costs and
improving process efficiencies, in their quest to become globally competitive. One such
initiative is Supply Chain Management (SCM). SCM recognizes that distinct functions like
Purchases, Inventory Management, Distribution and Production Planning work best when
integrated.

Supply Chain Management offers, at the least, reduction in costs across functions, better
planning for purchase and production, and much more efficient use of capital. It also offers a
13% of Indias GDP-opportunity for a variety of services - trucking, warehousing, IT,
personnel, ancillaries and a host of others.

Today all the four key elements of SCM materials, time, money and information- are being
tackled to squeeze out the maximum possible savings. Almost every leading company in
India now has an SCM drive in place. In HLL, chairman M. S. Banga considers SCM as one
of the key factors contributing the bottom line and enabling growth of the power brands.

Supply chain management (SCM) oversees and optimizes the processes of acquiring inputs
from suppliers, converting those inputs into a finished product, and delivering those products
or outputsto customers. SCM is an umbrella term that refers to a variety of approaches
for the management of natural and human resources from the supplier to the manufacturer or
service provider to the consumer and back . This includes the identification and creation of
new opportunities for products and services in cooperation with upstream and downstream
partners, and the involvement of internal as well as external stakeholders in decision making
on supply chain matters

23
Traditionally, a supply chain is:

A network of companies that exchange resources such as materials and information to

deliver products to customers. Supply chains consist of a company, its suppliers, its
distributors, and its customers.

In the traditional supply chain structure resources flow downstream to the consumer. The
supply network consists of a focal company and its suppliers, retailers, and customers. Figure
shows the basic structure of a supply chain.

Supplier Company Distribution channel Customer

A supply chain is the stream of processes of moving goods from the customer order through
the raw materials stage, supply, production, and distribution of products to the customer. All
organizations have supply chains of varying degrees, depending upon the size of the
organization and the type of product manufactured. These networks obtain supplies and
components, change these materials into finished products and then distribute them to the
customer.

Managing the chain of events in this process is what is known as supply chain management.
Effective management must take into account coordinating all the different pieces of this
chain as quickly as possible without losing any of the quality or customer satisfaction, while
still keeping costs down.

The first step is obtaining a customer order, followed by production, storage and distribution
of products and supplies to the customer site. Customer satisfaction is paramount. Included in
this supply chain process are customer orders, order processing, inventory, scheduling,
transportation, storage, and customer service. A necessity in coordinating all these activities is
the information service network.

In addition, key to the success of a supply chain is the speed in which these activities can be
accomplished and the realization that customer needs and customer satisfaction are the very
reasons for the network. Reduced inventories, lower operating costs, product availability and
customer satisfaction are all benefits which grow out of effective supply chain management.

24
The decisions associated with supply chain management cover both the long-term and short-
term. Strategic decisions deal with corporate policies, and look at overall design and supply
chain structure. Operational decisions are those dealing with every day activities and
problems of an organization. These decisions must take into account the strategic decisions
already in place. Therefore, an organization must structure the supply chain through long-
term analysis and at the same time focus on the day-to-day activities.

Furthermore, market demands, customer service, transport considerations, and pricing

constraints all must be understood in order to structure the supply chain effectively. These are
all factors, which change constantly and sometimes unexpectedly, and an organization must
realize this fact and be prepared to structure the supply chain accordingly.

Structuring the supply chain requires an understanding of the demand patterns, service level
requirements, distance considerations, cost elements and other related factors. It is easy to see
that these factors are highly variable in nature and this variability needs to be considered
during the supply chain analysis process. Moreover, the interplay of these complex
considerations could have a significant bearing on the outcome of the supply chain analysis
process.

25
Elements of the Supply Chain

A simple supply chain is made up of several elements that are linked by the movement of
products along it. The supply chain starts and ends with the customer.

Customer:

The customer starts the chain of events when they decide to purchase a product that has been
offered for sale by a company. The customer contacts the sales department of the company,
which enters the sales order for a specific quantity to be delivered on a specific date. If the
product has to be manufactured, the sales order will include a requirement that needs to be
fulfilled by the production facility.

Planning:

The requirement triggered by the customers sales order will be combined with other orders.
The planning department will create a production plan to produce the products to fulfill the
customers orders. To manufacture the products the company will then have to purchase the
raw materials needed.

Purchasing:

The purchasing department receives a list of raw materials and services required by the
production department to complete the customers orders. The purchasing department sends
purchase orders to selected suppliers to deliver the necessary raw materials to the
manufacturing site on the required date.

Inventory:

The raw materials are received from the suppliers, checked for quality and accuracy and
moved into the warehouse. The supplier will then send an invoice to the company for the
items they delivered. The raw materials are stored until they are required by the production
department.

26
Inventory generally refers to the materials in stock. It is also called the idle resource of a
company. Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in the form of materials which are yet to be utilized.

It also refers to the stockpile of the products a firm would sell in future in the normal course
of business operations and the components that make up the product.

Inventory is a detailed list of those movable items which are necessary to manufacture a
product and to maintain the equipment and machinery in good working order.

TYPES OF INVENTORIES

A manufacturing firm generally carries the following types of inventories:

Raw Materials.
Bought out parts.
Work-in-process inventory (WIP).
Finished goods inventories.
Maintenance, repair and operating stores.
Tools inventory.
Miscellaneous inventory.
Goods in transit.
Goods for resale.
Scrap Material.

REASONS FOR HOLDING INVENTORY

To stabilize production.
To take advantage of price discounts.

27
 To meet the demand during the replenishment period.
To prevent loss of orders.
To keep pace with changing market condition
The Transaction Motive which facilitates continuous production and timely execution
of sales orders.
The Precautionary Motive which necessities the holding of inventories for meeting
the unpredictable changes in demand and supplies of materials.
The Speculative Motive which induces to keep inventories for taking advantage of
price fluctuations, saving in re-ordering costs and quantity discounts etc,.

COSTS ASSOCIATED WITH INVENTORY

Production cost.
Capital cost.
Ordering cost.
Carrying cost.
Shortage cost.

INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency in production &
sales with minimum investment in inventory.

Inventory control is a planned approach of determining what to order, when to order and how
much to order and how much to stock, so that costs associated with buying and storing are
optimal without interrupting production and sales.

BENEFITS OF INVENTORY CONTROL

The benefits of inventory control are:

Improvement in customers relationship because of the timely delivery of goods and

services.

28
 Smooth and uninterrupted production and hence, no stock out.
Efficient utilization of working capital.
Economy in purchasing.
Eliminating the possibility of duplicate ordering.

PRINCIPLES OF INVENTORY CONTROL

Inventory is only created by spending money for materials and the labour and
overhead to process the materials.
Inventory is reduced through sales and scrapping.
Accurate sales & production schedule forecasts are essential for efficient purchasing,
handing & investment in inventory.
Management policies which are designed to effectively balance size and variety of
inventory with cost of carrying that inventory are the greatest factor in determining
inventory investment.
Forecasts help determine when to order materials. Controlling inventory is
accomplished through scheduling production.
Records do not produce control.
Control is comparative & relative, not absolute. It is exercised through people with
varying experiences and judgment rules & procedures establish a base from which the
individuals can make evaluation and decision.
With the consistent practices being followed, inventory control can become
predictable and properly related to production and sales activity.

INVENTORY CONTROL TERMINOLOGY

Demand:
It is the number of items required per unit of time. The demand may be either
deterministic or probabilistic in nature.

29
 Order cycle:
The time period between two successive orders is called order cycle.

Lead time:
The length of time between placing an order and receipts of items is called lead time.

Safety stock:
It is also called buffer stock or minimum stock. It is the stock or inventory needed to
account for delays in materials supply and to account for sudden increase in demand due
to rush orders.

Inventory turnover:
If the company maintains inventories equal to 3 months consumption. It means that
inventory turnover is 4 times a year i.e., the entire inventory is used up and replaced 4
times a year.

INVENTORY COST RELATIONSHIPS

There are two major cost associated with inventory. Procurement cost and carrying cost.
Annual procurement cost varies with the numbers of orders. This implies that the
procurement cost will be high, if the item is procured frequently in small lots. The annual
procurement cost is directly proportional to the quantity in stock. The inventory carrying
cost decreases, if the quantity ordered per order is small. The two costs are diametrically
opposite to each other. The right quantity to be ordered is one that strikes a balance
between the two opposition costs. This quantity is referred to as Economic Order
Quantity.

ECONOMIC ORDER QUANTITY

MEANING

A decision about how much to order has great significance in inventory management. The
quantity to be purchased should neither be small nor big because costs of buying and
carrying materials are very high. Economic order quantity is the size of the lot to be
purchased which is economically viable. This is the quantity of materials which can be
purchased at minimum costs. Generally economic order quantity is the point at which
inventory carrying costs are equal to order costs. In determining economic order quantity

30
 it is assumed that cost of managing inventory is made up solely of two parts i.e., ordering
cost and carrying cost. The cost relationships are shown in below figure.
Inventory Planning - Basic Concepts:
Every organization that is engaged in production, sale or trading of Products holds
inventory in one or the other form. While production and manufacturing organizations
hold raw material inventories, finished goods and spare parts inventories, trading
companies might hold only finished goods inventories depending upon the business
model.

When in case of raw material inventory management function is essentially

dealing with two major functions. First function deals with inventory planning and the
second being inventory tracking. As inventory planners, their main job consists in
analyzing
Totaldemand and Cost
Carrying deciding when to order and how much to order new inventories.

Traditional inventory management approach consists of two models namely:

Annual Carrying Cost
Annual Ordering
EOQ - Economic Cost
Order
EOQ Model Quantity
Continuous Ordering
Periodic Ordering
Order Quantity

1. EOQ: Economic Order Quantity method determines the optimal order quantity
that will minimize the total inventory cost. EOQ is a basic model and further
Minimum Total Annual
models developed based on this model include production Quantity Model and
Quantity Discount Model.

2. Continuous Order Model: works on fixed order quantity basis where a trigger for
Cost (S)
fixed quantity replenishment is released whenever the inventory level reaches
predetermined safety level and triggers re ordering.

3. Periodic System Model: This model works on the basis of

placing order after a fixed period of time.

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 EOQ =

D = Annual Demand
C=Carrying Cost
S = Ordering Cost

In this model, the demand increases for production the inventory gets depleted. When the
inventory drops to a critical point the re order process gets triggered. New order is always
place for fixed quantities. On receipt of the delivery against the order the inventory level
goes up.

Using this model, further data extrapolation is possible to determine other factors like how
many orders are to be placed in a year and what is the time lapse between orders etc.

EOQ for Production Lot:

This model is also used to determine the order size and the production lot for an item to be
produced at one stage of production and stored as work in progress inventory to be
supplied to the next state of production or to the customer.

FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY (EOQ)

Q= the EOQ order quantity. This is the variable we want to optimize. All the other
Variables are fixed quantities.
D= the annual demand of product in quantity per unit time. This can also be known

32
as a rate.
S= the product order cost. This is the flat fee charged for making any order and is
Independent of Q.
C=Unit cost.
H= Holding cost per unit as a fraction of product cost.

SAFETY STOCK

MEANING

The economic order quantity formula is developed based on assumption that the demand is
known and certain and that the lead time is constant and does not vary. In actual practical
situations, there is an uncertainty with respect to the both demand as well as lead time. The
total forecasted demand may be more or less than actual demand and the lead time may vary
from estimated time. In order to minimize the effect of uncertainty due to demand and the
lead time, a firm maintains safety stock, reserve stocks or buffer stocks.

33
The safety stock is defined as the additional stock of material to be maintained in order to
meet the unanticipated increase in demand arising out of uncontrollable factors. In simple it
tells about which is used to protect against uncertainties. Because it is difficult to predict the
exact amount of safety stock to be maintained, by using statistical methods and simulation, it
is possible to determine the level of safety stock to be maintained.

Production:

Based on a production plan, the raw materials are moved inventory to the production area.
The finished products ordered by the customer are manufactured using the raw materials
purchased from suppliers. After the items have been completed and tested, they are stored
back in the warehouse prior to delivery to the customer.

Transportation:

When the finished product arrives in the warehouse, the shipping department determines the
most efficient method to ship the products so that they are delivered on or before the date
specified by the customer. When the goods are received by the customer, the company will
send an invoice for the delivered products.

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Process View of a Supply Chain

Supply chain process cycle illustrates the four cycles and five supply chain stages

Customer
Customer Retailer
order cycle

Manufacturing
Replenishment
cyce Distributor
cycle

Procurement
Manufacturer cycle Supplier

Importance of Supply Chain Management

Of late, supply chain management is gaining growing importance because of the following
reasons :

Thetotal time for materials to travels through the entire supply chain management can
be quite long . Since the materials spends so much time waiting in inventory at
various stages in the supply chain, there is a great opportunity to reduce the total
supply chain cycle time leading to a corresponding reduction in inventory, increased
flexibility, reduced costs and better deliveries.

35
 Many companies have drastically improved their internal operations and now find it
necessary to consider relations with external customer and supplier in the supply
chain to gain further improvements in their operations.

Supply chain thinking is an application of systems thinking and provides a basic for
understanding processes that cut across a companys internal department and
processes that extend outside the company as well.

The goals of supply chain management are to reduce uncertainty and risks in the
supply chain, thereby positively affecting inventory levels, cycle time, processes and
ultimately end-customer service levels.

The design, planning and operation of supply chain have a strong impact on overall
profitability and success.

Supply chain management has become a hot competitive advantage as companies

struggle to get the right stuff to the right place at right time.

All the Total Quality Management, Just-in-Time System, Reengineering,

Team work and Delighting the Customers depends on the relationships with
supplier and distributors who are part of the supply chain.

Supply chain management includes transportation vendors, suppliers, distributors,

banks, credit and cash transfers, bills payable and receivable, warehousing and
inventory levels, order fulfillment and sharing customer, forecasting and production
information.

Supply Chain management (SCM), has now became a very vital part of management. Good
Supply Chain Management can result in

- Decreases Cycle Time

- Reduces the inventory level
- Decreases cost of production
- Let you decide strategy

36
Supply chain management is a way to supervise the flow of products and information as they
move along the supply chain. Supply chain management is the combination of art and science
that goes into improving the way your company finds the raw components it needs to make a
product or service, manufactures that product or service and delivers it to customers. The
following are five basic components for supply chain management.

1. Plan - This is the strategic portion of supply chain management. You need a strategy
for managing all the resources that go toward meeting customer demand for your
product or service. A big piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less and delivers high quality and value to
customers.

2. Source - Choose the suppliers that will deliver the goods and services you need to create
your product or service. Develop a set of pricing, delivery and payment processes with
suppliers and create metrics for monitoring and improving the relationships. And put together
processes for managing the inventory of goods and services you receive from suppliers,
including receiving shipments, verifying them, transferring them to your manufacturing
facilities and authorizing supplier payments.

3. Make - This is the manufacturing step. Schedule the activities necessary for production,
testing, packaging and preparation for delivery. As the most metric-intensive portion of the
supply chain, measure quality levels, production output and worker productivity.

4. Deliver - This is the part that many insiders refer to as "logistics." Coordinate the receipt of
orders from customers, develop a network of warehouses, pick carriers to get products to
customers and set up an invoicing system to receive payments.

5. Return - The problem part of the supply chain. Create a network for receiving defective
and excess products back from customers and supporting customers who have problems with
delivered products.

The ultimate goal of SCM is to optimize the supply chain, which can not only reduce
inventories, but may also create a higher profit margin for finished goods by giving
customers exactly what they want (and of course charging for it).

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What can SCM do?

A good SCM initiative gives visibility to all the players in the supply chain so that they are
able to react to the order. The moment a retailer receives an order, the retailers supplier also
sees it. The supplier checks inventory. If inventory is low, a manufacturer also with access
to the system produces more products and ships it to the supplier via a distributor that is
also connected to the system.

Meanwhile the supplier has sent the product to the retail for shipment to the customer. The
customer, in turn, can track the shipment of the order and perhaps even check inventory to
make sure an item is in stock before ordering. With Web technology, all the players in the
chain simultaneously manage inventory, control-manufacturing schedules and deliver an
order on time to a customer.

The concept of supply chain management encompasses four main decision areas: location,
production, inventory, and distribution. Within these areas decisions fall into two main
categories: Strategic decisions deal with the long-term future; and operational decisions deal
with the short term running of the company.

Location

In order to create a supply chain you must first decide on the geographic location of the
facilities that the organisation uses. These facilities include production plants, warehouses
and distribution points, suppliers, and buyers. A supply chain is essentially the interaction
between these facilities and the processes by which products move between them.

Strategically the location of the above facilities must be determined by the location of the
target market for the organisation. It will have an effect on running costs, taxes, local content,
distribution costs, and service.

The decision to locate a facility commits the organisation to allocating resources and, in some
cases, very large amounts of capital. Therefore it is imperative that the location is determined
on a strategic level. Operationally the location of facilities may affect the efficiency of the
running of the business.

38
Production

A supply chain is useless unless it has a product to pass through it. The decision on which
product to produce is directly affected by the organisations target market and therefore is a
strategic decision. Other strategic issues include the allocation of resources to the production
plants (i.e. suppliers), and the capacity of the plants.

Operational issues include the day to day running of the plants. Examples of these are
production scheduling and quality control.

Inventory

Decisions in this area affect all stages of the supply chain. The inventories through out the
chain will probably be at differing stages of development. For instance the inventories at the
beginning of the chain will be raw materials, at the end they will be the finished products.
These inventories, no matter what stage they are at have a value that is not yet being realized.
In order to minimize the unrealized value of the goods efficient management of the
inventories must take place.

Most of the issues involved with inventory are operational, for instance the maintenance of
stock levels within safety boundaries. On a strategic level management set the goals that are
to be achieved in this area and determine the reorder strategies (i.e. JIT).

Distribution

The key decisions in the distribution area involve the trading-off of inventory levels of buyers
with the costs of freight. Another matter to be considered is the nature of the product. It is no
good sending a shipment of perishable goods via sea or rail to save money if the goods are
not in a suitable condition once they reach their destination. On the other hand shipping by
sea or rail is cheaper but necessitates higher inventory levels to counter the uncertainty
associated with these methods (i.e. bad weather when shipping by sea).

Strategically, forecasts of the demand for the product allow for the co-ordination between the
distribution by various methods and the buyers inventory levels.

39
40
Supply Chain Decision-Making Framework

41
Supply chain strategy or design

The real-world experience provides the capability to devise solutions that are practical, as
well as aggressive and future-oriented. The flexibility to work on any aspect of Supply Chain
decision and operation, in addition to the vision and integration of an end-to-end design
including suppliers and customers.

An effective Supply Chain development lies in: recognizing that any company should be
operating a number of Supply Chains, for different linkages of distinct sources, customer,
products, channels; leveraging the capabilities of all participants in the chain, upstream and
downstream, internal and third party; creating a demanding vision for the future, and
sequencing a series of interim, attainable, steps to reach it; knowing the baseline starting
point of Supply Chain performance, and measuring the current state constantly.
Understanding the human dimension of the significant process, behavioral, and belief
changes that are required for breakthrough in Supply Chain performance; making operational
improvements early and often, while developing the Information Systems foundation for
better transaction processing, communications and decision support; and keeping the long-
term vision, the end-state objective, in view at all times. The scope of collective experiences a
real advantage in planning and executing a Supply Chain implementation, for sourcing and
procurement, through manufacturing integration, into Transportation and Network Design,
and Warehousing and Distribution operations.

42
Supply Chain planning

From acquiring raw materials to delivering finished products to end users, logistics
operation include all activities along the supply chain process, or as commonly referred to
in logistics circles, from "the suppliers' supplier to the customer's customer." this is the
supply chain. In well-functioning supply chain, at every link, each unit should treat the
next units a customer, always focusing on service to the ultimate customer, the end user or
client.

Customers focus

A well-functioning supply chain staff consciously strives to anticipate and satisfy customers'
need. Supply chain managers, in addition to their primary customers, also have important
intermediate customers, each with special needs and expectations.

Service providers are the final link in the long supply chain that stretches from manufacturers
to customers. Because they directly link logistics operations to the ultimate customer, service
are the most important "intermediate customer." service providers must be given the products
they need. Their fundamental concern is quality of care, and they understand the supply chain
system's contribution to their ability to provide quality care. Service providers need the
logistics system to deliver a dependable supply of quality products and other supplies for
their client, which means they need convenient and regular re-supply with minimal additional
work.

Warehouses and stores in the distribution chain are also intermediate customers that demand
logistics systems resources (staff, storage space, and transport); regular and predicable re-
supply of all products from the next higher level, and technical support and problem-solving
assistance, when needed.

Policymakers and senior program managers, as representatives of the program, also need to
be treated as customers by the next highest level in the system: donors, lenders, or other
suppliers of products. They want the same thing as every other customer along the supply
chain: reliable availability of the right products at the right time. They also need the supply
chain system to provide accurate data on stocks levels and strict accountability for materials,
and to provide cost effective logistics operations. Policymakers are particularly important

43
internal customers, because they control the allocation of funds and other resources for the
supply chain. International donors are the customers of their own suppliers. But, they also
have expectations from the in-country logistics system: they want the system to ensure
accountability for donated products; and accurate and timely data on products consumed,
quantities needed. Above all, donors want the logistics system to ensure the availability of
products to all current and potential customers.

When developing a customer culture within a supply chain, it is essential to identify all the
system's customers and their respective needs and expectations. The primary customer,
however, is always the client. While a supply chain may be required to satisfy a variety of
internal or intermediate customers, the most successful supply chain unswervingly focus on
satisfying end users.

44
Supply Chain Obstacles/Challenges

Increasing Variety of Products

Decreasing Product Life Cycles

Increasingly Demanding Customers

Fragmentation of Supply Chain Ownership

Globalization

Difficulty in Executing New Strategies

45
Supply Chain Drivers

Inventory

This refers to means by which inventories are managed. Inventories exist at every stage of the
Supply Chain as either raw materials, semi-finished goods or finished goods. They can also
be in process between locations. Their primary purpose to buffer against any uncertainty that
might exist in the Supply Chain. Since, holding of inventories can cost anywhere between 20
to 40 per cent of their value, their efficient management is critical in Supply Chain
operations. It is strategic in the sense that top management sets goals. However, most
researchers have approached the management of inventory form an operational perspective.
These include deployment strategies (pull verses push), control policies the determination
of the optimal levels of order quantities and reorder points, and setting safety stock levels, at
each stocking location. These levels are critical, since they are primary determinants of
customer service levels.

The keys to effective Inventory Management lie in shortening the lead-time throughout your
Supply Chain:

Understanding how your order frequencies and quantities drive inventory and its
consequent effect on warehouse sizing and slotting,
Analyzing the trade-off of centralized vs. distributed inventory, in terms of inventory
investment, transportation costs, and customers service capabilities,
Integrating and coordinating the silos in your organization, for optimum inventory
strategies across the entire Supply Chain,
Being bold, and confident, enough to make inventory decisions for operational
improvements in the face of negative accounting issues; and building a Supply Chain
and inventory strategy to evaluate your customers expectations and anticipate their
genuine needs.
Includes:

1. Raw Materials
2. Component parts
3. Work in process (WIP)
4. Finished goods

46
Transportation
The mode choice aspects of these decisions are the more strategic ones. These are closely
linked to the inventory decisions, since the best choice is often found by trading off the costs
of using the particular mode with the indirect cost of inventory associated with that mode.
While air shipments may be fast, reliable, and want lesser safety stock, but they are
expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate
holding relatively large volumes of inventories to buffer against the inherent uncertainty
associated with them. Therefore, customer service levels, and geographic location play vital
roles in such decision. Since, transportation is more than 30% of the Logistics costs,
operating efficiency makes good economic sense. Shipment sizes (consolidated bulk
shipment versus lot-for-lot), routing and scheduling of equipment are key in effective
management of firms transport strategy.

The estimated Rs 65,000crore Indian trucking industry has been in existence before SCM as a
concept came into vogue. Trucking plays a vital role in SCM in the flow of material. The
success of the entire exercise of planning and investing in ERP and Supply Chain software
depends on whether goods reach on time. Timely movement of goods is primary concern of
any Supply Chain, says Vishal Gupta, director Total Logistics. The traditional transport
companies are now transforming into a fleet manager offering value-added services like track
and trace, specialized trucks for certain goods, warehousing and other facilities, and serving
user specific industries.

The need to provide value-added services has also resulted in strategic tie-ups by truckers,
say with specialized operators to serve specific industries. For e.g. TCI has tied-up with
Mitsui to form trans-system that offers logistics services to the auto industry.

Transportation includes the following:

i. Moving inventory from point-to-point

ii. Impact on

(1) Responsiveness

(2) Efficiency

The future of the Indian trucking industry depends on various factors like economic growth
and investments in infrastructure. At present a number of organised transport operations are

47
leveraging on their strength in trucking by combining allied services like clearing and freight
forwarding, warehousing and customer relationship Management to become complete
Logistics players. This is taking the form of tie-ups, acquisition. The future will see similar
consolidation happening in this arena, especially in the organised segment that makes about
15% of the market.

Commercial Vehicles and Logistics: The Movement Zones

Type of Movement Key Feature

Long distance, bulk

Raw material to factory
Primary movement
Finished goods to
Mechanical handling
warehouses
Operational economy
Convenient batches
Warehouse to Safe transportation
Secondary
wholesaler/retailer Timely distribution
Optimum turnaround

Door delivery
Timely delivery
Wholesaler / retailer to
Tertiary City Operations
consumer
Frequent start-stops
High manoeuvrability

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The potential issues and opportunities in most transportation situations are:

Is the internal fleet cost-and-service effective?

Are you getting the most of your money from common carriers?
When 3PL solution is is the right way to go?
Are you paying what you have agreed to?
Is the mix of modes and services you are using right for your changing business?
How much should I be charging my customers for delivery?
Why cant my fleet make money?
How can transportation enable an integrated Supply Chain, instead of getting in the
way?
Facilities
a) Warehousing/Storage
Warehouse is the quiet key to effective service. Review whether the warehouses are in the
right locations to effectively serves the customers. With the speed that is required to manage
orders and inventory, companies must have timely, accurate information of inventory on-
hand. Warehouses must be located in the proper areas to effectively meet customers delivery
requirements.

i. Where inventory

(1) Stored

(2) Assembled

(3) Fabricated

ii. Types

(1) Storage

(2) Production

(3) Marketing

49
b) Material Handling
It is concerned with movement of product at the stocking point and it involves decisions such
as:
Smoothening of raw material
Selection of material handling equipment
Maintenance of material handling equipment.

"The Mission of Materials Management Services

is the acquisition
of the RIGHT goods and services,
in the RIGHT quantity,
at the RIGHT time,
of the RIGHT quality,
at the RIGHT place,
from the RIGHT supplier
and at the RIGHT cost,
at a minimum inventory and operating investment."

c) Packaging
It is concerned with design of packaging of product that ensures damage free movement of
the product and is conductive to efficient handling and storage.

Information

A must for successful implementation of Logistics functions. Developing proper Data Base,
IT system, such as ERP and DI methods.

Accurate forecasting
Good order Management
Just-in-time (JIT)
Contingency Replenishment (CR)
Quick Response (QR) to the customer
- are the bases for good information system to be developed.

50
Order Processing

The order processing system undergoes various checks to determine if:

(1) the desired product is available in inventory in the quantities ordered,

(2) the customers credit is satisfactory to accept the order, and
(3) The product is scheduled for production if not currently in inventory.
Management can also use the information on daily sales as an input to its sales forecasting
package. Order processing next provides information to accounting for invoicing,
acknowledgement of the order to send to the customer, picking and packing instructions to
enable warehouse withdrawal of product, and shipping documentation. The primary function
of the order processing system is to provide a communication network that links the customer
and the manufacturer.

51
 Cost Trade-Offs Required in Marketing and Logistics
MARKETING

LOGISTICS

52
Achieving strategic fit in Supply Chain Management

Achieving strategic fit: Matching S.C. to customer segment requirements

Understanding the Quantity of product provided in each lot

customer: Response time that customers are willing to tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation

(Volumes, variety, response time, service level, price

innovation rates)

Understanding the Responsiveness

supply chain:
Respond to wide range of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level

Efficiency

Economies of scale
Low capacity (excess costs)
Low cost transport

53
Zone of
Strategic Fit

Achieving Strategic Fit

Finding the Zone of Strategic Fit

Uncertain
ImpliedCertain
Demand
Demand
Uncertainty
Spectrum

Fit Between Competitive and Functional Strategies

Competitive Strategy

Supply Chain Strategy

Product Manufacturing Marketing and Sales
Development Inventory Strategy

Strategy Lead Time

Purchasing
Transportation
Information Technology Strategy

Finance Strategy

Customer Service
54
The Integrated Supply Chain Strategy

In order to optimise performance, supply chain functions must operate in an integrated

manner. But the dynamics of the enterprise and the market make this difficult; materials do
not arrive on time, production facilities fail, workers are ill, customers change or cancel
orders, etc. causing deviations from plan. The Integrated Supply Chain Management (ISCM)
addresses coordination problems at the tactical and operational levels. It is composed of a set
of cooperating, intelligent agents; each performing one or more supply chain functions, and
coordinating their decisions with other agents -this is called a Logistical Execution System
(LES). Our approach views problem-solving as a constraint satisfaction/optimisation process
where agents influence each other's problem solving behaviour through the communication of
constraints. Coordination occurs when agents develop plans that satisfy their own internal
constraints but also the constraints of other agents. Negotiation occurs when constraints, that
cannot be satisfied, are modified by the subset of agents directly concerned. The recent
advent of the Internet and WWW as infrastructures for global connectivity has confirmed the
distributed multi-agent orientation of the project and has allowed us to develop new Internet
agent technologies that can aptly support the global integration and management of the
supply chain.

55
 Achieving an Integration Supply Chain

Integrated Supply Chain

INBOUND OUTBOUND
SUPPLY STORAGE
SUPPLY
CHAIN CHAIN

Outsourcing
Inbound Transportation Order Processing /
Warehousing
Production Planning Inventory
Inventory Control
(For Outsourcing & Outbound
in-house) Transportation

56
Performance Measurement

Delivery Service
On time
Order fill rate
Lost Sales

Cost Time
Inventory Order cycle time
Freight Replenishment lead-time
Overheads

Supply Chain Performance Metrics:

Why we are doing simulation? Because, we want to analyze our supply chain. We need a set
of performance metrics, which can be used to determine comparative efficiencies of different
configuration of supply chain. These metrics can be either qualitative or quantitative.
Qualitative factors include Customer satisfaction, flexibility of supply chain, information and
material flow integration etc. But since these can't be measured as numerical quantity, so it is
very difficult to do comparison based on it. Quantitative factors are as follows:

Cycle Time - can be supply chain process lead time or order-to-delivery of lead-time.

Customer service level - measured by computing order fill rate, stock out rate, back order rate
and delivery probability of each individual element.

Inventory Levels and holding cost, Resource Utilization, Transportation cost

Beside this we can also include cost of raw materials, penalties for incorrectly order filled
etc to our performance metrices.

57
 OBJECTIVES/NEED FOR SCM

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.

The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply chain
management is a strategy through which such integration can be achieved.

Moreover, 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 to meet or even exceed their customers' expectations.

The major objective of supply chain management is to reduce or eliminate the

buffers of inventory that exists between originations in chain through the sharing of
information on demand and current stock levels.

58
 Broadly, an organization needs an efficient and proper supply chain management
system so that the following strategic and competitive areas can be used to their full
advantage if a supply chain management system is properly implemented.

Fulfillment of raw materials:

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:

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.

Smooth 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.

Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the supply chain
improves a company 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 then companies without supply chain management thus increasing
the overall profit.

Reduction in Costs:

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.

59
Mutual Success:

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 suppliers 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 higher quality goods provided at a lower cost.

ACTIVITIES/FUNCTIONS OF SCM

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.

Products design coordination, so that new and existing products can be

optimally integrated into the supply chain.

Information Technology infrastructure, to support supply chain operations.

Where to make and what to make or buy decisions.

Tactical:-

60
 Sourcing contracts and other purchasing
decisions.

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.

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.

FUTURE OF SCM

The most notable is Radio Frequency Identification, or RFID. RFID tags are
essentially barcodes on steroids. Whereas barcodes only identify the product, RFID tags can

61
 tell what the product is, where it has been, when it expires, whatever information someone
wishes to program it with. RFID technology is going to generate mountains of data about the
location of pallets, cases, cartons, totes and individual products in the supply chain. It's going
to produce oceans of information about when and where merchandise is manufactured,
picked, packed and shipped. It's going to create rivers of numbers telling retailers about the
expiration dates of their perishable items-numbers that will have to be stored, transmitted in
real-time and shared with warehouse management, inventory management, financial and
other enterprise systems. In other words, it is going to have a really big impact.
The a b c...... D of RFID: "DATA"

In current systems, you may know there are 10 items on the shelf, and that
information is compiled in an enterprise planning software system. With RFID, you know
there are 10 items, their age, lot number, and expiration date and warehouse origin. It's like
knowing there are 1,000 people in a city. With RFID, you know their names. Think like you
are a HR manager of a global corporation who remembers all the employees by their names!!
Wouldn't that be great? That's the power of RFID- the DATA.

Radio frequency identification (RFID) can be broadly categorized as an 'e-tagging'

technology. RFID enables passive object tagging and automatic data capture, using RF
sensing as opposed to optical sensing in the case of barcodes. RFID is fast, reliable, and does
not require physical sight or contact between reader/scanner eliminating the problems
mentioned for barcodes. The range of sensing RFID tags from a reader varies from a few
centimeters to a few meters, depending on the frequency and the type of tags (active or
passive). The amount of data that can be stored inside RFID tag ranges from few bits to 1 MB
for active tags.

Benefits:

The main benefit of RFIDs is that, unlike barcodes, RFID tags can be read
automatically by electronic readers. Imagine a truck carrying a container full of widgets
entering a shipping terminal in China. If the container is equipped with an RFID tag, and the
terminal has an RFID sensor network, that container's whereabouts can be automatically sent
to Widget Co. without the truck ever slowing down. It has the potential to add a substantial
amount of visibility into the extended supply chain.

The benefits are divided into two parts

Benefits to Organisation:
Inventory Management:-
Maintain a real-time view of tagged inventory as it flows through the
supply chain.
Track discrete movement of tagged inventory.
Trigger alerts around inventory movement based on business rules
you construct.
Allowing just-in-time practices.
Maximizing warehouse space:-

62
 With the high costs associated with storage real estate, the goal is to maximize
warehouse space. This will improve utilization without undermining the ease with which
goods can be moved in and out.

Minimizing goods shrinkage:-

Theft combined with imprecise inventory management can create a significant

shortfall in actual versus expected goods available. Within the retail environment goods
shrinkage is widely perceived to account for up to one per cent of stock, representing a
significant dent in profit margin.

(c) Benefits to Consumers:

Value Innovation in customer service

Marks & Spencer, a British retailer, has just extended a trial in which tags are
applied to suits, shirts and ties for men, allowing retailers to monitor and replenish stock
levels with far more accuracy at the end of each day to make sure that every size, style and
color remains in stock. Beyond improving efficiencies, the smart tags could help to drive
sales. One example of improving customer service: a customer could take a tagged suit to a
kiosk, which could then suggest a matching shirt and tie.

Minimizing errors in delivery

Misdirected deliveries or incorrect orders can immediately result in on-shelf

out-of-stock situations leading to reduced sales and damaged customer relationships. Indeed,
for organizations relying on the delivery of specific components to fulfill their own order
schedule, such errors can have a serious impact on customer satisfaction.

RFID tags represent a significant step forward from traditional bar code
technology and offer highly reliable data most notably, the US Department of Defense
requires their suppliers to ship products with RFID tags from 2006 onwards. Therefore, the
broad adoption of RFID is on its way. By 2010, RFID should be ubiquitous throughout
industries. Right now the two biggest hurdles to widespread RFID adoption are the cost of
building the infrastructure and the lack of agreed-upon industry standards.
Some Key technologies which are going to change the face of SCM in coming days are:
8. EDI (for exchange for information across different players in the supply chain);
9. Electronic payment protocols;
10. Internet auctions (for selecting suppliers, distributors, demand forecasting, etc.);
11. Electronic Business Process Optimization;
12. E-logistics;
13. Continuous tracking of customer orders through the Internet;
14. Internet-based shared services manufacturing; etc.

SUPPLY CHAIN MANAGEMENT PROBLEMS

63
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.

64
Chapter:3

COMPANY PROFILE

65
INTRODUCTION

INDUSTRY PROFILE
The start of organized sector of the Indian machine tool industry took place in early years of
the Second World War. Due to non-availability of imported machine tools, few British
owned general engineering firmstook up their manufacturing in India. This followed the start
of centrally planned economy as reflected in a series of five-year plans. This process of
planned economy resulted in the second phase of Machine Tool Manufacturing with start of
Public Sector Investment in Machine Tools (HMT Ltd.1953). These two initial phases of
development of the Indian machine tool industry saw the production of general purpose
machine tools most of which were produced under technical assistance from foreign
collaborators (Oerlikon, Louden, Ward, Herbert, Jones & Shipman, etc.).
The sixties marked the third phase of machine tool industry, typified by rapid growth in
production and horizontal expansion in types of machine tools (multi spindle automats, gear
cutting machines, SPMs, broaching machines, presses, etc.). The Fourth Phase beginning
mid-eighties saw the advent of the Japanese machine tool makers through licensing
arrangements (Mori-Seiki, Mitsubishi, Hitachi-Seiki, NachiFuji-Koshi, Murata, etc.).
The fifth and current phase began in early nineties after the new policies of Open Market
Economy were introduced, which saw advent of Technocrats. With market share of big
companies, shrinking public sector giants and those of these technocrat owned companies
rising, in-house design capability, entrepreneurial spirit, greater technology friendliness,
operational flexibility and lean managements were combined to give a 6 greater competitive
edge to the technocrats resulting in a significant shift in machine tool production to these
medium-sized companies, away from the bigger ones. Thus, the Indian machine tool industry
has undertaken a long way in the last decade since liberalization and economic reforms were
ushered in. Now, the industry, which had a technology dependent status, boasts of successful
products out of its own R&D efforts. The recent decrease in imports of machine tools was
partly attributed to the growing competitiveness of Indian firms. However, the Indian market
is small and the Indian manufacturers have to build volumes in order to survive at global
markets. This issue is of even greater relevance to a large number of SMEs in the sector
where a large number of enterprises are manufacturing tiny and small component. It was
visualized that in addition to building volumes, the SMEs would also have to upgrade their
products and processes in terms of technology and quality in order to remain competitive at
both local and global markets. Thus, the machine tool industry faced the dilemma of whether

66
to remain as finished product supplier and face competition from large volume players or
become sub -suppliers of components and / orSub-systems to OEMs.
The latent potential of this sector and its inherent strengths lent credence to the belief that the
Indian machine tool industry can become a significant global player and carve a niche for
itself in the high technology sunrise segment of NC/CNC machine tools. However, towards
achieving this status, the industry does need to adopt a visionary approach and aim at a
stretched goal of exponential growth, which must essentially be export-driven.

Core Competency
The Indian machine tool industry manufactures almost the complete range of metal-cutting
and metal-forming machine tools. Customized in nature, the products from India comprise
conventional machine tools as well as computer numerically controlled (CNC) machines.
There are other variants offered by Indian manufacturers too, including special purpose
machines, robotics, handling systems, and TPM-friendly machines. One of the significant
developments in machine tool industry in recent times has been the Computer Numerically
Controlled (CNC) machines. Emergence of CNC machine tools and its dominance over the
last few years in the overall product segment stemmed from its value-added features, such as
enhanced productivity, higher precision, increased reliability, better finishing, and improved
aesthetics and design. Achievement of higher growth and increased share of CNC machines
in the overall output surmises the commitment of Indian machine tool manufacturers to
providing competitive manufacturing solutions, now at cost effective prices. In terms of key
product segments, high growth areas for the Indian machine tool industry include turning
centers, machining centers, grinding machines, and cell manufacturing, amongst others. The
other emerging demand is for total manufacturing solutions, whereby users seek to
economies on manufacturing cost and time.

Challenge

In the Indian context, stagnant demand, declining tariff barriers, pressures on margins,
technology obsolescence have all put Fear in the minds of SMEs, fear of their very survival.
In many SMEs, fear is shrouded within the cloak of Uncertainty about the future. There is
also lack of confidence, mentioned by Schrage, that they cant face the future on their own.
Such fear psychosis or uncertainty is maximum in this line of business and therefore
differentiates this sector on the very motivation behind its future progress.

67
1. Technology Obsolescence: Technology obsolescence in the machine tool business is
extremely rapid. Product lifecycles are declining and currently average life cycle is no more
than 3 years! Thus, in a globalized India, SMEs have been and will continue to face
challenges they have not seen before. In the past, most of the products have been a result of
Reverse Engineering. Unlike the Japanese and Koreans, the Indian manufacturers have not
graduated to the next level of Improving the technology of reverse engineered products.
Thus, product technology obsolescence is a major issue facing the Indian machine tools
industry today.
2. Higher Resource Requirement: The restricted availability and the inability to raise
resources are common to all types of small businesses. However, the machine tools sector, by
its very nature, is a high financial outlay driven business. Average product costs are greater,
gestation period of investments longer, time to market higher and a purchasing system
not yet fully matured. This entire means greater, than most other businesses, financial
resource requirement. This, in turn, puts the machine tool SMEs in a particular disadvantage.
3. Vendor Linkages: No other business requires such complex level of vendor Linkages as
the machine tools. For materials, electrical, electronics, hydraulics, pneumatics, metallurgy,
tribology, measurement controls the list of myriad technology linkages is endless. This
requires exceptional networking capabilities and plenty of time to be spent by owner of
accompany/CEO himself.
4. Diversity: The business has also a very large diversity. For example, it encompasses over
200 HS codes! (Harmonization Code System) This further enhances the unique complexity of
the business, which is more heterogeneous.

CURRENT REALITY OF INDIAN MACHINE TOOL INDUSTRY

The growing competition and technological developments in this sector are having inevitable
effects on the Indian machine tool industry, as a whole. The Indian machine tool is faced with
typical problems in the emerging globalization scenario as under:
1. Innovation is not happening as fast as it should.
2. Domestic market is too small.
3. Information about market is poor.
4. Lack of training including the concept of 5s.[Seiri (Proper Arrangement and Clearing Up),
Seiton (Orderliness), Seiso (Clean Up), Seiketsu (Standardization), Shinseki (Discipline)]
5. Lack of professionalism.
6. Manufacturers sell different designs of machine variety is too large.

68
7. Manufacturers sell machines not solutions.
8. Information sharing is poor.
9. Absence of a Center of Excellence for R&D.
10. Low volume operations and not able to reap benefits of scale.
11. Country is not industrializing at fast pace.
12. Exports are low.
13. After sales service is poor.
14. Poor product design and image.
15. Prices of machines are high compared to China /Province of Taiwan.
16. Small units cannot spend on R&D.
17. Absence of large number of service providers.
18. High cost of consultants.
19. High cost of production.
20. Input costs are high.
21. Small units have uneconomical procurement costs.
22. No formal channels of communication exit.

Despite the current global recession, the Indian machine tool industry hopes to generate
business enquiries worth Rs 6,000 crore at the Indian machine tool exhibition, IMTEX 2009
which was held here from January 22 to 28. The Indian Machine Tool Manufacturers
Association (IMTMA), which is organized this mega event for the second time in Bangalore
and 14th time in all, believes that the economic revival will happen sometime middle of this
year.

The machine tool industry will survive this phase with the government and the industry
taking policy changing decisions and corrective measures with the larger picture of the
industry in focus, N K Dhand, President, IMTMA said. He told that, the machine tool
industry will survive and grow despite a 5 per cent cancellation in orders from the
prospective customers in the automobile and auto components sector. The industry, which
had been growing at an average 30 per cent over the last five years, is likely to remain flat
during the current financial year, he said.

The machine tool industry registered a turnover of Rs 7,600 crore in 2014-15, about 22 per
cent over the previous year. Of this, metalworking machine tools is Rs 2,100 crore,
accessories for mac-hine tools is Rs 1,500 crore and the remaining Rs 4,000 crore is from
69
cutting tools and tooling systems. The industry size including unorganised players could be of
the order of Rs 17,000 crore.

2.ORGANIZATION STUDY

COMPANY PROFILE

HISTORY OF COMPANY

UPT Industries, it all began back in the year 2006. Today, Company has transformed
themselves from a humble manufacturing unit to a multi dimensional industrial engineering

70
 tool manufacturing conglomerate. The journey has undoubtedly been long and challenging.
But by meeting the needs of burgeoning industrial sector and catering to its every demand,
they have been growing and evolving in new direction.

Their manufacturing prowess covers a wide range of cutting tools and precise engineering
tools. And yet what keeps us surging ahead is the love of new challenges, each of which gives
us a chance to showcase our entrepreneurial spirit and sense of enterprise.

UPT Industries is a leading manufacturer and suppliers of high quality engineering tools. We
have been manufacturing high quality engineering tools since 2006 to over 500 companies.
With more than 22 years of staff experience, an organized setup and huge stocks of inventory,
we can promise the best quality and on-time deliveries.

We are a well reputed company in the national market and every year we try to participate in
all the major trade shows around the country. We follow international standards such as DIN,
GS and ANSI in production.

We specialize in developing items as per customers specifications on exclusive basis. We

also offer private branding. We have complete in-house QC including complete testing
laboratory for hardness testing, dimensional checking, accuracy and torque testing facilities,
etc.

Leading India manufacturers, suppliers of engineering tools like vises, boring bars,
boring tools, boring heads, precision tools, tool holders, chucking equipments, clamping
equipments, tapping and threading tools, cutting tools, milling cutters, lathe chucks, magnetic
tools, angle plates, punches, chisels, scribers, diamond dressing tools, hobby tools,
watchmaker tools, lubrication equipments etc.

COMPANY PROFILE

Name of the Company United Precision Toolings Pvt.Ltd

Year of Establishment 2006

M.D and Chairman Yashkaran Lully - Chairman.

Jasbinder Singh- M.D

71
Works and Office Address Opp.4th Cross ,Near GIP Kalyan Nagar Dharwad-

580007 Karnataka-India.

Registered Office Hill View , AttikollaDharwad 580007

Tele - fax 0836- 2748264

Email/ Website Email:- sales@upt.co.in

Website:- www.upt.co.in

Renamed United PrecisionTooltechPvt.Ltd.

Trademark
UPT

Nature of the Activity Its Manufacturing tool holding Like:

Collets, Chuck, Adopters, Fixtures, Micro, Boring head, Air

Chuckles, and Sockets

No. of Employees 50 including Staff

Banker State bank Of Mysore.

Turn Over 2.50 Crore Per year

VISION:

To be World Class machinery inner tools Company with High Quality products and Services.

MISSION:

To supply best quality products globally, through continuous improvement of Quality of our
Products and Services.

OBJECTIVES

72
 To achieve good quality production and customer satisfaction.
To maintain mutual beneficial relationship with dealers and other business associates.
To focus on providing on time delivery service at competitive reasonable rate.
To have a good and healthy relationship with employees at the organization.
To acquire large market share, by expanding the business.

PRODUCT PROFILE:

1. BORING HEADS:
UPT boring heads give unparalled high precision in tool rooms and in production jobs.

(fig 2.1)
Varieties
Boring tools
Boring bars
Cartridges
Shanks
Boring and facing heads

2. CNC TOOLING SYSTEM:

73
 (fig 2.2)

Varieties
HSK
CAT
Milling chuck
TG
Straight shank
Coolant series
DAT
Edge fingers
EOC & pull studs

3. DRILL CHUCK ARBORS:

(fig 2.3)

Varieties
Key less drill chucks
Key drill chucks
Drill sleeves
Drill chucks arbors

4. COLLETS:

74
 (fig 2.4)

Varieties
ER COLLET CHUCK SERIES
Multi spindle collets

ORGANIZATION STRUCTURE

Managing Director

Technical
Director
75
 Finance Marketin
Manager g
Manager

Accounta Sales
nt Engineer
Production
Casher Manager Sales Rep

Turning Milling Heat Grinding

Treatment

Supervisor Superviso Supervisor

r Store

Turners Miller Grinders

Store
keeper Assembly

Helper

SERVICES

Our products with high definition of reliability and durability are the specialty of United
Precision tooling. We can undertake any order of specialized collet manufacturing as per
drawings or sample. We are the leading manufacturer uses good quality raw materials with an
approach to satisfy you. Our engineers routinely upgrade the process of product
manufacturing due to the involvement of innovation and research.

The quality assurance

We fulfill all customized demand of our clients using innovative specialization in the
manufacturing processes. Spindles, Fixtures, Collet chucks, Collet sleeves and many more
are processed in a specific engineering that lessens the price of the final output. Using our
collets in the machineries can be a matter of advantage. The products are of accurate size,

76
perfect finish, accurate in degree. Our collets are available in variety of shapes and sizes.
Collets we manufacture are based on metric sizes and inches.

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 DIFFERENT DEPARTMENTS AND THEIR FUNCTIONS

A. HUMAN RESOURCE DEPARTMENT

B. PRODUCTION DEPARTMENT
C. MARKETING DEPARTMENT
D. FINANCE DEPARTMENT

A. HUMAN RESOURCE DEPARTMENT

OWNER/PROPRIETOR

TECHNICAL DIRECTOR/HR MANAGER

ALL EMPLOYEES

It is the branch of personnel department, time office is the key to the personnel department. It
performs the basic function of the personnel departments it maintains the record of the arrival
& departure time of all the staff members including the managerial staff. the person who
looks after the record of the time office is called time keeper. The company issues a digital ID
card which is used to sign in as well as security purpose of the company with fingerprint
scanner which is later analyzed at the time of paying the salary to the individual. The workers
are also required to sign in the attendance register to avoid manipulation or escaping tricks,
later the data is sent to finance department for allocation of the salary.

B. PRODUCTION DEPARTMENT

TECHINICAL DIRECTOR

78
 PRODUCTION MANAGER

SUPERVISOR

OPERATORS

DRILLING GRINDING TURNING HEAT

TREATMENT

The main aim of the production department is the optimum utilization of available resources
and to supply the products on time .this dept aims at the attainment of the objective To plan
and meet the production requirements as per customer specification through continual
improvement in planning, procuring, processing and optimum utilization of resource.

C. MARKETING DEPARTMENT

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This department manages the sales of the tools as well as the advertisement. It sells the goods
directly to another business and government entities using the brand name UPT.

TECHINICAL DIRECTOR

MARKETING MANAGER

SALES ENGINEER

LIST OF SOME CUSTOMERS

LOCAL NATIONAL

Spicer India pvt.ltd HMT machine tools, Blore& Ajmer

RSB transmission India pvt.ltd SKF India ltd, Blore
Telcon, Airtech IFB industries ltd, Goa
Skytech group Finolex cables ltd, Goa
BDK & Micro finish valves Mico, Blore
Wagner trident electrical ltd NRB bearings, Mumbai
Hardrock attachments etc. BHEL,JSW,JSPL etc.

D. FINANCE DEPARTMENT

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This department takes Care of all the normal calculations and maintenance of their ledgers
with the help of accountant and a casher and also takes care all government requirements
which even include pollution, labour, sales & income tax departments etc.

OWNER/PROPRIETOR

FINANCE MANAGER

PRODUCT DESCRIPTIONS TABLE

No Product Range Application

1 Collets Gripping size 3mm to Used to hold cutting tools like

81
 60mm chills and mill etc.

2 Collets holder ---------------- Use to hold collets normally

used on milling Machines

3 Reduction Sockets Mt 1 to Mt 2 Use to hold taper Shank

Drills.

4 CNC Toolings ---------------- Used to CNC Milling

machines.

5 Stub Arbors 160 600 Used to hold side and Face

Cutters and face mill Cutters

6 Micro boring Facing Heads 1000 to 12000 Used for finishes forcing of
per drilled holes and also used
for facing.

7 Pneumatics Chucks 160 to 3150 Used to lathe to hold work

pieces by air pressure.

8 Jaw Cell Centering Chucks 1000 to 3500 Used to lathe to hold work
pieces by air pressure.0

Micro Boring Bars 500 to 2000 Used on CNC milling

machines to finish per -
9
drilled hold but individual
sitting of boring range will be
very less as compared to

82
 boring heads.

10 Milling Indexing Fixture --------------- Used to hold work Piece and

for index milling of the same.

PRODUCT DESCRIPTIONS

Micro Boring and facing head for boring machine, jig bores, milling machine radial drilling
machines and lathe.
Hardened and ground collets of all size with various rangers.
Air operated and heating treatment processes.
Pneumatics cylinder of various size lever operated collets chucks.
Muting adopters and adjustable adopters.
Jig grinder attachments.
Hardened and ground collets Clare chucks and collets.
Flash chine tool holders.
Auto grip adopters.
Micro boring bars.
Adjustable adopters

SWOT ANALYSIS

A scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S)
or weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching the firm's resources and
capabilities to the competitive environment in which it operates. As such, it is instrumental in
strategy formulation and selection. The following diagram shows how a SWOT analysis fits
into an environmental scan:

SWOT Analysis Framework

83
1.Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing
a competitiveadvantage.

22 years experience of staff

Willingness to take challenges

good reputation among customers

cost advantages from proprietary know-how

manufacture import substitute products

special products manufactured with the expertise of in house design and research

2. Weaknesses

The absence of certain strengths may be viewed as a weakness.

lack of patent protection

Inconsistency in accuracy.

a weak brand name & marketing strategies

training and up gradation of staff knowledge

Poor after sales service

lack of access to resources nearby raw materials bought from distant places

company is not in industrial area so less government facilities

3.Opportunities

84
The external environmental analysis may reveal certain new opportunities for profit and
growth. Some examples of such opportunities include

arrival of new SEZ in Belgaum

loosening of regulations

willingness of workers to grow

situated in dharwad workers are available for less wages compared to industrial areas
nearby

there are many industries which are still unaware of the company in Karnataka region
as they concentrate more on large scale industries

4. Threats

Changes in the external environmental also may present threats to the firm. Some examples
of such threats include:

Competition from international players manufacturing in India.

competitors are rising day by day in their business

new manufacturers sell products at lower price to get large orders

new regulations by government

technology improvement reduces the life cycle of the product which is only 3yr now

85
Chapter :4

ANALYSIS & INTREPRETATION

ANALYSIS AND INTREPRETATION

86
Elements of Supply chain management in United Precision tooltechPvt Ltd

1. CUSTOMER

Based upon the demand of a customer the company manufactures the tools according
to the customer specification and according to the need of a customer and also based on
dimensions given by them.The customer contacts the sales department of the company, which
enters the sales order for a specific quantity to be delivered on a specific date. If the product
has to be manufactured, the sales order will include a requirement that needs to be fulfilled by
the production facility.As this company manufactures tools based on the specifications and
quantity of the products given by the customer,they are involved in batch type of
production ,they will not produce in mass quantity.This company has B2b and B2C
business,and the customer can order ther product through e-commerce.

The local customers and national customers of United precision tools are

LOCAL NATIONAL

Spicer India pvt.ltd HMT machine tools, Blore& Ajmer

RSB transmission India pvt.ltd SKF India ltd, Blore
Telcon, Airtech IFB industries ltd, Goa
Skytech group Finolex cables ltd, Goa
BDK & Micro finish valves Mico, Blore
Wagner trident electrical ltd NRB bearings, Mumbai
Hardrock attachments etc. BHEL,JSW,JSPL etc.

United precision tools have their customers all over india ,where some of the
company like spicer india pvt ltd near jodalli kalghatgi road dharwad requires the
product of standard size ,based upon that standard size the company manufactures the
tool required for that company and its also manufactures the product for micro
enterprises based upon the specification given by them.The customer can order their

87
 product through india mart website or application by specifying the required
dimensions like length,width,diameter,height etc .

2.Planning and puchasing:

The requirement triggered by the customers sales order will be combined with other orders.
The planning department will create a production plan to produce the products to fulfill the
customers orders. The purchasing department receives a list of raw materials and services
required by the production department to complete the customers orders. The purchasing
department sends purchase orders to selected suppliers to deliver the necessary raw materials
to the manufacturing site on the required date.

They buy raw materials of name 20MnCr5 and EN47 made up of Case hardened steel and
spring steel respectively which are involved in bulk purchasing 8-9 tonnes in every six
months and usage may be aroubd 1.5 tonnes /month.Based upon the customer demand they
buy raw materials of type D2 and EN24 made up of Die steel and Hardened steel
respectively from the suppliers in mumbai.

3.Inventory:

The raw materials are received from the suppliers, checked for quality and accuracy and
moved into the warehouse or store room. The supplier will then send an invoice to the
company for the items they delivered. The raw materials are stored until they are required by
the production department.They plan and control the inventory based upon certain technique
slike ABC analysis,Trendanalysis,inventory turnover ratio

ABC ANALYSIS
MEANING

The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. On the basis of unit cost involved, the various
items are classified into 3 categories:

88
 (1) A, consisting of items with the large investment,
(2) C, with relatively small investments but fairly large number of items and
(3) B, which stands mid-way between category A & C.

Category A needs the most rigorous control, C requires minimum attention and B
deserves less attention than A but more than C.

Sl Items Amount(Rs
no Name(OD) ) A B C
180/36 200
16 180/364 216873.6 4 D2 70
EN
10 100 86659.2 100 190 8100
8 90 84611.1 90 105 150
EN
193
5 65 83880 65 2 80
19 200 D2 64462 50 160
17 190 52128 127 36
13 105 49091.58 200
11 EN 1932 38110 45
4 50 37529.8 40
12 127 32752.2
6 70 17151.8
9 EN 8100 16707.6
14 150 15116.4
7 80 12392.4
15 160 11724.9
1 36 11107.8
18 200 9768
3 45 6885
2 40 6334.2

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Items Amount(Rs) Percentage(%) Percentage(%) Classification

4 4,7
2,025.8 21.10 55.33 A

6 2,74,072.58 B
31.57 32.11

9 1,07,187.78 C
47.36 12.56

19 8,53,286.16
100 100

90
 ABC Analysis
100

80

60 Amount%

40

20

0
0.5 1 1.5 2 2.5 3 3.5

(Chart 5.1)

The above table shows the classification of various components as A, B & C classes using
ABC analysis techniques. From the classification A classes are those items which are less in
quantity i,e 21.22% but costs about 55.33%. B classes are those which constitutes 31.33%
of total components and costs 32.11%.C classes are those which are about 48% of total
components and costs about 12.56%

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TREND ANALYSIS

MEANING

Regression means dependence and involves estimating the values of a dependent

variable Y, from an independent variable X.
Y = a + bx

Where a= y b x b = xy n x y
x2- nx2

CALCULATION OF INVENTORY TREND

Inventories
YEAR (Rs.) X X2 XY
(x) Y X=x-2014 (Rs)
2012 1,44,290 -2 4
-2,88,580
2013 3,62,150 -1 1 -3,62,150
2014 7,32,790 0 0 0
2015 14,17,931 1 1 14,17,931
2016 17,95,116 2 4 35,90,232

TOTAL() 44,52,277 0 10 43,57,433

x = x/n = 0/5 = 0

y = y/n =44,52,277/5 = 8,90,455.4

b = xy n x y = 43, 57,433- 5 * 0= 4,35,743.3

x2- nx2

a = y b x = 8,90,455.4 4,35,743.3* 0 = 8,90,455.4

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 y = a + bx
= 8,90,455.4+4,35,743.3x

The forecast of inventory for the year 2017 is computed by substituting x = 2017 in the above
equation.
=8,90,455.4+4,35,743.3 x
=8,90,455.4+4,35,743.3(x-2013)
=8,90,455.4+4,35,743.3 (2016-2013)
=8,90,455.4+4,35,743.3 (3)
=21,97,685.3

Therefore inventory for the year 2017 will be approximately Rs. 21, 97,685.3

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INVENTORIES PERCENTAGE

Years Inventories Percentage

2012 1,44,290 2.23
2013 3,62,150 5.61
2014 7,32,790 11.36
2015 14,17,931 18.98
2016 17,95,116 27.83
2017 21,97,685 34.07

TOTAL 64,49,962 100

Percentage
120

100

80
Percentage
60

40

20

(Chart 5.2)

ANALYSIS&INTERPRETATION:

In the above table shows the percentage of inventories increases from 2.23 to 27.83 %
in the year 2011-2015.the inventory for the year 2016 is expected to be 34.07% which is
again in the increasing trend, as inventories are treated as current assets. This infers that the
inventory requirement is increasing in the future period also. It shows satisfactory position of
inventories as it implies increasing production & demand for the product.

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INVENTORIES TURNOVER RATIO
MEANING
This ratio is calculated to consider the adequacy of the quantum of capital and its justification
for investing in inventory. A firm must have reasonable stock in comparison to sales. It is the
ratio of net sales and the average inventory. This ratio helps the financial manager to evaluate
inventory policy. This ratio reveals the number of times finished stock is turned over during a
given a accounting period.

The formula for the ratio is = Netsales

Avg. Inventory

Inventories Turnover Ratio

Calculation of inventory to sales

Inventory to sales

Year Inventory(in rupees) Sales(in rupees) Percentage

2012-13 3,62,150 41,15,662 11.15%

2013-14 7,32,790 1,41,60,614 19.37%

2014-15 14,17,931 1,23,44,200 8.74%

2015-16 17,95,116 1,40,17,146 7.80%

95
 Percentage
20.00%

15.00%

10.00%

5.00%

0.00%
2011-12
2012-13
2013-14
2014-15

(Chart 5.3)

ANALYSIS&INTERPRETATION:

In the above table shows inventory turnover ratio for the past years. The ratio from 2011-
2013 shows increasing in turnover ratio, which indicates efficiency in operations and from
2013-2015 its goes on reducing resulting inefficiency in operation and results into excess
inventory.

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4.Production:

Based on a production plan, the raw materials are moved inventory to the production area.
The finished products ordered by the customer are manufactured using the raw materials
purchased from suppliers. After the items have been completed and tested, they are stored
back in the warehouse prior to delivery to the customer. The main aim of the production
department is the optimum utilization of available resources and to supply the products on
time .this dept aims at the attainment of the objective To plan and meet the production
requirements as per customer specification through continual improvement in planning,
procuring, processing and optimum utilization of resource.

5.Transportation:

When the finished product arrives in the warehouse, the transprt department determines the
most efficient method to transport the products so that they are delivered on or before the date
specified by the customer. When the goods are received by the customer, the company will
send an invoice for the delivered products.They receive and transport rawmaterials and
finished goods through private transport agencies.

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FINDINGS

98
BIBLIOGRAPHY

Websites visited:

1. <http://www.scm.com/services/packaged-
applications/supply_chain_management_home.asp>

2. <http://www.lancoglobal.com/index.html>

3. <http://en.wikipedia.org/wiki/Supply_chain_mamagement>

4. <http://en.wikipedia.org/wiki/Demand_chain_management>

Reference books:

1. Notes of supply chain management

2. Arntzen, B. C., G. G. Brown, T. P. Harrison, and L. Trafton. Global Supply Chain

Management at Digital Equipment Corporation. Interfaces, Jan.-Feb., 1995.

3. Production and operation management by Aswatappa

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